Mr AVC V Mrs SIPP

LULULU1

I have been advised that I am better off paying into my wife SIPP than my AVC and wondered if someone could confirm please
Im already over the 25% tax free amount in my AVC.

Option 1 Continue to pay into my AVC (example £100) and save tax and national insurance and then transferring this money to a SIPP when I retire. I would still have to pay tax when I make withdrawals on the SIPP as my pensions are over £12k. The advantage is initial savings on tax and NI and investment returns in a fund

Option 2 Stop paying into my AVC, which would mean pay extra tax and national insurance on this money but then pay £80 into wife SIPP. She will earn less than £12K in retirement and therefore gain 20% tax relief on the way in and not have to pay any tax when she takes it out after 55.

Can you confirm Option 2 is the best way forward please.

dasherman

If I understand your question correctly and ignoring investment returns:

With your AVC's. you'll be getting the benefits of tax relief and salary sacrifice on the way in, but then effectively paying back the tax relief on the way out.

With the SIPP, you'll only be getting the benefits of tax relief, but you'll be keeping them!

Tax relief offers a more attractive return on your money than salary sacrifice.

Dox

LULULU1 said:

I have been advised that I am better off paying into my wife SIPP than my AVC and wondered if someone could confirm please
Im already over the 25% tax free amount in my AVC.

Option 1 Continue to pay into my AVC (example £100) and save tax and national insurance and then transferring this money to a SIPP when I retire. I would still have to pay tax when I make withdrawals on the SIPP as my pensions are over £12k. The advantage is initial savings on tax and NI and investment returns in a fund

Option 2 Stop paying into my AVC, which would mean pay extra tax and national insurance on this money but then pay £80 into wife SIPP. She will earn less than £12K in retirement and therefore gain 20% tax relief on the way in and not have to pay any tax when she takes it out after 55.

Can you confirm Option 2 is the best way forward please.

Who has 'advised' you? A qualified adviser who has done the necessary fact find? If so, why are you asking here?

Nobody can confirm that, because there are factors other than tax to be taken into account - added to which we are likely to see major tax changes (i.e. hikes) to cope with the aftermath of Covid-19.

cloud_dog

Even if the OP is taxed on the whole of this additional money in to the AVC (I understand this is balderdash but bear with me...), they would be deferring 32% deductions (assuming a BRT payer) and paying tax on the whole of the contribution at 20%, a saving of 12 base points or 60% over non-SS deduction (20%).

If they put net money in to the OHs SIPP they would be benefiting at the worst by deferring (in essence) 20% taxation for 15% taxation, using the standard 25% TFLS and the remaining 75% being taxed.

The only scenario where you will gain by doing the later is where the OH doesn't have a large pension pot and will draw down the maximum without being taxed, or only a small percentage being taxed.

LULULU1

Dox said:

LULULU1 said:

I have been advised that I am better off paying into my wife SIPP than my AVC and wondered if someone could confirm please
Im already over the 25% tax free amount in my AVC.

Option 1 Continue to pay into my AVC (example £100) and save tax and national insurance and then transferring this money to a SIPP when I retire. I would still have to pay tax when I make withdrawals on the SIPP as my pensions are over £12k. The advantage is initial savings on tax and NI and investment returns in a fund

Option 2 Stop paying into my AVC, which would mean pay extra tax and national insurance on this money but then pay £80 into wife SIPP. She will earn less than £12K in retirement and therefore gain 20% tax relief on the way in and not have to pay any tax when she takes it out after 55.

Can you confirm Option 2 is the best way forward please.

Who has 'advised' you? A qualified adviser who has done the necessary fact find? If so, why are you asking here?

Nobody can confirm that, because there are factors other than tax to be taken into account - added to which we are likely to see major tax changes (i.e. hikes) to cope with the aftermath of Covid-19.

Badly worded by me. What other factors than tax are you considering ?

LULULU1

cloud_dog said:

Even if the OP is taxed on the whole of this additional money in to the AVC (I understand this is balderdash but bear with me...), they would be deferring 32% deductions (assuming a BRT payer) and paying tax on the whole of the contribution at 20%, a saving of 12 base points or 60% over non-SS deduction (20%).

If they put net money in to the OHs SIPP they would be benefiting at the worst by deferring (in essence) 20% taxation for 15% taxation, using the standard 25% TFLS and the remaining 75% being taxed.

The only scenario where you will gain by doing the later is where the OH doesn't have a large pension pot and will draw down the maximum without being taxed, or only a small percentage being taxed.

cloud_dog said:

Even if the OP is taxed on the whole of this additional money in to the AVC (I understand this is balderdash but bear with me...), they would be deferring 32% deductions (assuming a BRT payer) and paying tax on the whole of the contribution at 20%, a saving of 12 base points or 60% over non-SS deduction (20%).

If they put net money in to the OHs SIPP they would be benefiting at the worst by deferring (in essence) 20% taxation for 15% taxation, using the standard 25% TFLS and the remaining 75% being taxed.

The only scenario where you will gain by doing the later is where the OH doesn't have a large pension pot and will draw down the maximum without being taxed, or only a small percentage being taxed.

cloud_dog said:

Even if the OP is taxed on the whole of this additional money in to the AVC (I understand this is balderdash but bear with me...), they would be deferring 32% deductions (assuming a BRT payer) and paying tax on the whole of the contribution at 20%, a saving of 12 base points or 60% over non-SS deduction (20%).

If they put net money in to the OHs SIPP they would be benefiting at the worst by deferring (in essence) 20% taxation for 15% taxation, using the standard 25% TFLS and the remaining 75% being taxed.

The only scenario where you will gain by doing the later is where the OH doesn't have a large pension pot and will draw down the maximum without being taxed, or only a small percentage being taxed.

Thank you cloud dog.

Why would it be balderdash that I Would be taxed on the remaining 75% of AVC money after receiving my 25% Tax free. I don't understand that ?

Yes the scenario is that my wife will have no income between 55 to pension age and therefore wouldn't pay any take on first £12.5k. 

Many thanks for your reply......

cfw1994

LULULU1 said:

Dox said:

LULULU1 said:

I have been advised that I am better off paying into my wife SIPP than my AVC and wondered if someone could confirm please
Im already over the 25% tax free amount in my AVC.

Option 1 Continue to pay into my AVC (example £100) and save tax and national insurance and then transferring this money to a SIPP when I retire. I would still have to pay tax when I make withdrawals on the SIPP as my pensions are over £12k. The advantage is initial savings on tax and NI and investment returns in a fund

Option 2 Stop paying into my AVC, which would mean pay extra tax and national insurance on this money but then pay £80 into wife SIPP. She will earn less than £12K in retirement and therefore gain 20% tax relief on the way in and not have to pay any tax when she takes it out after 55.

Can you confirm Option 2 is the best way forward please.

Who has 'advised' you? A qualified adviser who has done the necessary fact find? If so, why are you asking here?

Nobody can confirm that, because there are factors other than tax to be taken into account - added to which we are likely to see major tax changes (i.e. hikes) to cope with the aftermath of Covid-19.

Bit of a bizarre comment. Why on earth would I come on to a forum if qualified advisor had provided such information. Also I don't understand why a person on these boards couldn't provide such information. What other factors than tax ?

You did start with “ I have been advised”....

cloud_dog

LULULU1 said:

cloud_dog said:

Even if the OP is taxed on the whole of this additional money in to the AVC (I understand this is balderdash but bear with me...), they would be deferring 32% deductions (assuming a BRT payer) and paying tax on the whole of the contribution at 20%, a saving of 12 base points or 60% over non-SS deduction (20%).

If they put net money in to the OHs SIPP they would be benefiting at the worst by deferring (in essence) 20% taxation for 15% taxation, using the standard 25% TFLS and the remaining 75% being taxed.

The only scenario where you will gain by doing the later is where the OH doesn't have a large pension pot and will draw down the maximum without being taxed, or only a small percentage being taxed.

 Thank you cloud dog.

Why would it be balderdash that I Would be taxed on the remaining 75% of AVC money after receiving my 25% Tax free. I don't understand that ?

Yes the scenario is that my wife will have no income between 55 to pension age and therefore wouldn't pay any take on first £12.5k. 

Many thanks for your reply......

Hi... The balderdash bit related to you being taxed on the all of these additional (new) monies going in to your AVC, as obviously an element of the new money (25%) would be tax free but, I just wanted to use it as a worst case scenario so as to put some sticks in the ground to gauge the cut-over point. 

tigerspill

It can depend on a number of things.  For me, AVC was a no brainer.  Fir my wife, SIPP was the better option.
1. My company did AVCs is salary sacrifice is saved NI as well as tax.  OH's pension doenst use Sal Sac so SIPP gave a better fund & platform choice.
2. My TFLS from my AVC was 25% of the WHOLE pension benefit inc. the defined benefit part (25% of annual pension x 20 plus AVC) so all will be tax free.  SIPP would only have 25% of the SIPP tax free.

jamesd

You can also take personal pension money before 55 and for those in final or average salary pensions it can be useful to do this to avoid the actuarial reduction for taking the pension before scheme normal retirement age. That benefit can be substantial.

What income tax rate and NI percentage are you saving on the AVCs?

What can you do with AVC over  25% of combined AVC and defined benefit value? Can you transfer some out? All? When?

LULULU1

Sorry just noticed I never replied to you.
I am currently saving 20% tax plus something called PSE so 32% in total I think.
The AVC can be transferred in its entirety to another provider for draw down purposes and I can do this anytime I want....