Tax Relief on AVC payments

Gadfium

Bit of a daft question.

If I pay in a lump sum into my DB workplace pension as a lump sum by cheque, when does the 20% tax relief get added?

Ta in advance.

FatherAbraham

Gadfium wrote: »

Bit of a daft question.

If I pay in a lump sum into my DB workplace pension as a lump sum by cheque, when does the 20% tax relief get added?

Ta in advance.

I''m not sure why you class this as a daft question, it seems perfectly reasonable to me.

You've titled your post "Tax relief on AVC payment", but the body of your message talks about paying a lump sum into a defined benefit pension. These are usually two distinct things, and you should clarify whether your are using an AVC to invest a lump sum, or buying extra defined benefits.

If you're investing in an AVC fund, then the pension-fund provider is responsible for claiming the 25% uplift (equating to 20% tax on the gross amount) from HMRC. Some providers add the uplift immediately, others wait until the tax refund is actually received from HMRC. Who is the pension-fund provider for AVCs?

If you're buying extra benefits in a DB scheme, then it's possible that there's there's no way for tax relief to be added to the lump sum.

Warmest regards,
FA

dasherman

I can only speak from my own experience, but the last time i paid in a lump into my money purchase AVC which was some time ago now, i had to pay the gross amount and then had a tax refund about 4 weeks later.
Conversely I also pay into it directly from from my pay each week and have always received tax relief at source.

Annie1960

You need to check which way your scheme works.

My AVC did not pay the tax relief into the AVC, it just meant I paid less tax. However, I also had another private pension where any payments I made were topped up within the plan by tax relief.

hookooekoo

Just to state my recent [14/15 tax yr] experience of making a lump sum one off avc payment to my final salary pension [which does not operate relief at source for lump sum payment], payment of £18,000 made from bank acc. and this amount invested with company avc provider. Confirmation received from company of gross payment without tax relief and this was passed to hmrc with accompanying letter asking for refund of tax. As a basic rate tax payer i was expecting a cheque refund of £3600 [20% of £18000] but i actually received a cheque for £2800 which is a refund of the amount of tax i paid for that year! I'm not sure if this corrct or if i should have received the full £3600 regardless of how much tax i paid? Any thoughts on this would be appreciated. [my paye income was approx £24500]

xylophone

i actually received a cheque for £2800 which is a refund of the amount of tax i paid for that year!

See http://www.uss.co.uk/Factsheet%20List/Factsheet1AdditionalVoluntaryContributionsFS.pdf

"Tax relief is limited to the amount of tax you have paid in
the current tax year. This is especially relevant if you are
considering high levels of contributions or a lump sum
contribution that were not matched by relevant UK earnings,
other than that salary, for the employment from which your
USS contributions are deducted"

Relevant to your situation?

Gadfium

Thanks for the replies all:beer:

FatherAbraham wrote: »

I''m not sure why you class this as a daft question, it seems perfectly reasonable to me.

You've titled your post "Tax relief on AVC payment", but the body of your message talks about paying a lump sum into a defined benefit pension. These are usually two distinct things, and you should clarify whether your are using an AVC to invest a lump sum, or buying extra defined benefits.

If you're investing in an AVC fund, then the pension-fund provider is responsible for claiming the 25% uplift (equating to 20% tax on the gross amount) from HMRC. Some providers add the uplift immediately, others wait until the tax refund is actually received from HMRC. Who is the pension-fund provider for AVCs?

If you're buying extra benefits in a DB scheme, then it's possible that there's there's no way for tax relief to be added to the lump sum.

Warmest regards,
FA

My pension is a BT Defined Benefit (section C) one. I also pay a regular payment (before tax and NI) into it as AVCs. These payments are then invested in a global equity tracker.

I've paid an additional lump sum in via cheque. HMRC have adjusted my tax code to reflect the additional 20% tax relief (I am a higher rate tax payer) and I believe that the pension managers request the initial 20% tax themselves?

dasherman wrote: »

I can only speak from my own experience, but the last time i paid in a lump into my money purchase AVC which was some time ago now, i had to pay the gross amount and then had a tax refund about 4 weeks later.
Conversely I also pay into it directly from from my pay each week and have always received tax relief at source.

Thats sounds similar to my situation. I've only started paying AVCs this calendar year so am still a bit unsure how exactly they work with regards to tax relief. I understand that the regular payments are paid before tax and NI...its just the lump sum that I'm now unsure of.

tigerspill

Gadfium wrote: »

Bit of a daft question.

If I pay in a lump sum into my DB workplace pension as a lump sum by cheque, when does the 20% tax relief get added?

Ta in advance.

With my company's AVC scheme, I need to claim all the tax back myself. No 20% added.

Gadfium

tigerspill wrote: »

With my company's AVC scheme, I need to claim all the tax back myself. No 20% added.

Thanks...I guess that I need to speak to the pension trustees and get their advice.

FatherAbraham

Gadfium wrote: »

Thanks...I guess that I need to speak to the pension trustees and get their advice.

Surely you just need to look at what's being taken from your salary, whether that is a deduction from gross (before taxation) or net (after taxation) pay, and compare with what's been put into your tracker fund corresponding to that contribution?

If it's come out of gross pay, there'll be no tax reclaimed by the pension provider; if it's out of net pay, then you'd normally expect the payment into the fund to be 25% higher than your contribution, because provider will have reclaimed the "relief" of 20% tax back.

You do have your annual statement, don't you? Doesn't it show what's being paid into the fun, and when?

Going to the trustees for a simple taxation question sounds a bit over the top!

Warmest regards,
FA

Gadfium

FatherAbraham wrote: »

If it's come out of gross pay, there'll be no tax reclaimed by the pension provider; if it's out of net pay, then you'd normally expect the payment into the fund to be 25% higher than your contribution, because provider will have reclaimed the "relief" of 20% tax back.

Thanks again for taking the time to respond.

The regular payments are taken before tax and NI. It's not those that I am querying though. Its a one-off lump sum payment that was paid by cheque.

I'll speak to the helpdesk people this week and clarify.