Tax relief on Company AVC at 40%

gibbo888

Hi.

I earn 60K.
i pay £200pm into my company pension.
if i paid another £1500 into a Company AVC.

What are the rules regarding tax relief?

£1700 x 12 = £20400 Gross contributions.

£60000 - £20400 = £39600
This puts me below HRT band

How does this effect my tax relief? do i get 40% on the lot, even though my gross earnings are now below £45000? as i have a 60k salary.
I cant seem to find the answer anywhere.
There must be a sweet spot where my AVC contributions keep me above 45K so get 40% on the lot maybe?£14999? gross per year or is the full avc at 20% i dont want to contribute too much and not get maximum tax relief?

Confused :~)

bigadaj

You just match your contributions to your salary minus the higher rate tax threshold.

So should be £1250 per month gross.

gibbo888

Thanks Bigadaj.

so what would happen to the tax relief, if i put the £1700 away?

that would be £450Per Month "over" the 40% average.

would this extra £450 just be taxed at 20%?

Dazed_and_confused

You should be getting basic rate (20%) relief at source through the AVC provider so £800 paid in becomes £1000 in your AVC fund.

You then get the higher rate relief via HMRC, either through a higher tax code or a refund if you tell them after the relevant tax year had finished.

Your salary is irrelevant for working out what the optimum amount to pay is, what matters is your taxable pay. This should be shown in your payslip and is the figure which your employer reports on your P60.

For example if your £200/month is deducted before tax, quite common for company schemes, your P60 would show your taxable pay as £57600 (£60000 - £2400 pension).

This year £57600 is £14600 over the standard basic rate threshold (£12600 if you don't live in Scotland) so you would get 40% tax relief on this amount but anything over that would only attract the basic rate tax relief added by your AVC provider.

Any tax relief you get comes back to you, it isn't added to your pension fund.

greenglide

You should be getting basic rate (20%) relief at source through the AVC provider so £800 paid in becomes £1000 in your AVC fund.

If these are really "AVCs" then they will almost certainly be taken from gross pay before tax is calculated. Under these circumstances there is no "tax relief" involved as the pension payments have already reduced the tax amount at the highest you pay.

gibbo888

greenglide wrote: »

If these are really "AVCs" then they will almost certainly be taken from gross pay before tax is calculated. Under these circumstances there is no "tax relief" involved as the pension payments have already reduced the tax amount at the highest you pay.

Thanks, as you say there is no tax relief, instead my taxable salary reduces as the AVC increases, which saves me paying tax on that money meaning the 40% threshold is irrelevant.