NHS Scotland Pension - Should I use AVCs to take my income below the 42% tax bracket

mor_2

I am 56 and work in the NHS in Scotland. I retired at 55 and returned to work part time. I earn £47666 from my part time salary of £32,273 and 2 pensions of £15050 and £342.
I am paying into the 2015 Pension scheme at an 11.3% contribution rate (a rule change last year has allowed retirees to rejoin the scheme).
So my taxable income is currently £44019 after pension contributions are taken off.
I am wondering if it would be sensible to use AVCs to bring my taxable income below the 42% tax bracket which is currently £43,663 ?

BoGoF

So is the £32,273 the full taxable figure for 23/24 - just with you saying you returned part time and wondering if it was for the full year.

Personally, I would do anything to avoid the ridiculous Scottish higher rate and in your position would pay into the AVC.

mor_2

Thanks for replying. Yes, that's the full amount for 2023/4. I retired in July 2022 - not last year as I said - forgot we were now in 2024!
Yes, tax is ridiculously high here in Scotland. 
Is there any benefit at all (that I might be missing) in keeping my taxable income just over the 42% tax threshold. Do I get more tax relief on my pension contributions? 

Andy_L

It depends if you have a better use now for 58% of that salary above the threshold compared to 100% of it at retirement age

mor_2

Thank you. I'm getting confused. If I am in the 42% tax bracket as opposed to the 21%, does the government's tax relief men that more money is going into my pension?

BoGoF

mor_2 said:

Thank you. I'm getting confused. If I am in the 42% tax bracket as opposed to the 21%, does the government's tax relief men that more money is going into my pension?

No, you are however saving more in tax.

Dazed_and_C0nfused

mor_2 said:

Thank you. I'm getting confused. If I am in the 42% tax bracket as opposed to the 21%, does the government's tax relief men that more money is going into my pension?

No, it won't make any difference.

But it might change how much you wish to contribute.

If the AVC is paid using the net pay method (as used for the main NHS pension) then £100 paid into your pension will always be £100 in the pension.  But as it is deducted before tax is calculated the real cost to you could be anywhere from £58 to £79.

£79 if you avoid paying 21% tax
£58 if you avoid paying 42% tax
Between £58 and £79 if you avoid paying some 21% tax and some 42% tax.

mor_2

Thank you. So I might be better keeping my taxable income just above the 42% tax threshold. 
I think the downside of that is that my savings (out with my ISA) will be taxable because I'm due to earn approx £850 interest this year, so more than the £500 tax free interest allowed as a higher rate tax payer. 

QrizB

mor_2 said:

Thank you. So I might be better keeping my taxable income just above the 42% tax threshold.

I don't think you can reach that conclusion from anything posted in this thread.

Dazed_and_C0nfused

mor_2 said:

Thank you. So I might be better keeping my taxable income just above the 42% tax threshold. 
I think the downside of that is that my savings (out with my ISA) will be taxable because I'm due to earn approx £850 interest this year, so more than the £500 tax free interest allowed as a higher rate tax payer. 

I don't understand why you think that 🤔

And interest is taxed on UK rates and bands not Scottish rates/bands.

Look at the example of Stephanie here, in particular the final paragraph of that example.

https://www.litrg.org.uk/tax-guides/tax-basics/what-scottish-income-tax/how-does-scottish-income-tax-work

mor_2

Thanks, I was really getting mixed up. 
Also, thanks for correcting my mistake about the Savings Tax Allowance being under the UK tax scheme - I remember reading this ages ago and had completely forgotten.
Thanks everyone, this has been really helpful. I've been at this for weeks and this is the first time I've had clear direction from anyone I have asked! 
I am filling out my AVC Application Form tonight!