AVC dodge to gain Tax Relief?

bitofatit

My partner is in a a good DB scheme and has been forever. She retires in 2015 and despite being a higher tax rate payer has never been tempted to invest in AVCs despite the tax advantages as you won't have direct control over the money when you retires.

Question - if she invested a lump sum immediately in an FCAVC and then did the same in the next financial year (14/15) - would she be able to take the full pension pot when she retires in cash - at her new marginal tax rate (20% ) in retirement? I'm thinking for investing for less than 2 years she could grab a 20% return in double quick time?

Sounds to good to be true?

Triumph13

bitofatit wrote: »

My partner is in a a good DB scheme and has been forever. She retires in 2015 and despite being a higher tax rate payer has never been tempted to invest in AVCs despite the tax advantages as you won't have direct control over the money when you retires.

Question - if she invested a lump sum immediately in an FCAVC and then did the same in the next financial year (14/15) - would she be able to take the full pension pot when she retires in cash - at her new marginal tax rate (20% ) in retirement? I'm thinking for investing for less than 2 years she could grab a 20% return in double quick time?

Sounds to good to be true?

It could be even better than that. If the rules of the DB scheme allow you to have a linked AVC and combine the two for the purposes of calculating the 25% lump sum then she might be able to take it out tax free turning every £60 into £100 - a 66.7% return.

If her 'good DB scheme' is the LGPS she needs to do this by the end of March and the best she could do would be a lump sum this year and a regular payment next year.

Pretty well any other public sector scheme the ability to do this has already gone and she can only gain the partial advantage you have already identified. If it's a private sector scheme then she would need to check.

There are recycling rules that she'd have to take care to avoid eg you can't borrow to fund the AVC then pay it off with the lump sum, but if you tread carefully there is definitely some tax to be saved here.

OldBeanz

Recycling - a nice little read - http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm04104920.htm

bitofatit

Triumph13 wrote: »

It could be even better than that. If the rules of the DB scheme allow you to have a linked AVC and combine the two for the purposes of calculating the 25% lump sum then she might be able to take it out tax free turning every £60 into £100 - a 66.7% return.

If her 'good DB scheme' is the LGPS she needs to do this by the end of March and the best she could do would be a lump sum this year and a regular payment next year.

Pretty well any other public sector scheme the ability to do this has already gone and she can only gain the partial advantage you have already identified. If it's a private sector scheme then she would need to check.

There are recycling rules that she'd have to take care to avoid eg you can't borrow to fund the AVC then pay it off with the lump sum, but if you tread carefully there is definitely some tax to be saved here.

Thanks for the responses - she is in fact in the Civil Service - so she can take a CS AVC (not linked but lower mgt. Charges) or a Free Standing AVC. Due to the time scales that's why I mentioned specifically (Mis-spelt) the FSAVC. which I'm guessing could be opened quickly.

Not sure where recycling comes in. In that she has savings to fund the FSAVC investment.

OldBeanz

If she is ok about the recycling then she would be far better putting the money through a PP or SIPP.
She could open a SIPP with HL for example tonight (HL offer good service and reasonable charges but this is not appreciated by the hard core savers on here) as this would take advantage of her allowance for this financial year. She would struggle to have a FSAVC set up for the end of April and certainly not in 5 working days.