AVC and tax

galoglas1314

I had an AVC with a previous employment which I stopped paying into when I left. I am over 55 and could cash in the AVC and put it toward paying off the mortgage. However I am unsure about the tax situation. I know if I cash it in now I will be paying tax on some of it. If I leave it until I retire and take it do I still pay tax on it at that time or is it tax free.

xylophone

What happened to the main pension?


Is it possible to use the AVC to fund the PCLS from the main pension so as to maximise the monthly pension?

See example here

https://www.xeroxpensions.co.uk/a706.asp

You are permitted to take the AVC separately from the main pension?

You will need to check your scheme rules.

If so, presumably the AVC would be treated as any other DC pension- 25% PCLS with the balance taxed as income in the year of receipt.


Whether or not you will pay tax on your pension income (whether now or later) will depend on your overall tax position at the time.



Be aware that if you were to cash in a pension in full, you could put yourself into a higher tax band.

Also be aware that you will almost certainly be taxed by the provider and that the tax paid might not be correct.

See

https://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/

galoglas1314

The main pension is not being touched as I am not yet planning to retire. The AVC is sitting with the Prudential and can be taken at any time. If I am going to get taxed on that in say 5 years time when I retire then I'm as well just taking it now as I'm going to get taxed anyway on it.

jaybeetoo

If the main pension is linked to the AVC, you are allowed to take all of the tax free cash lump sum you are entitled to from the AVC (if less than or equal to 25% of your total pension) and leave the main company pension scheme benefit to provide you with a pension income. You’d have to take the main pension and AVC at the same time.

If you take the AVC now, you can only take 25% of it tax free.