AVCs can get me under 40% ??

pennine

I have had a good year and earned just under 40K this year so far, so I have decided to put my last 3 paychecks into AVCs totally. Can I deduct my pension and share contributions from the 40K to make sure I get under the 40% mark ? Is there a calculator anywhere I can use or is it a straightforward deduction from my gross salary ? Many thanks.

pennine

I would like to have an idea how much I need to pay to get me below the 40% mark.

jem16

Higher rate tax starts at £39,825 for this tax year. So if you have income above this then that is how much you need to pay into your pension.

Remember that you need to include ALL income such as earned income and income from savings interest and dividends.

lowbrim

Actually the 40% tax threshold is £34,601. But you have your tax allowance on top of that so if your tax code is say 400 then you get to earn £38601 (34601 + 4000) before you pay 40% tax but remember you only pay 40% on the earnings above that. So if you earnt £39601 you would pay 40% on £1000 ie £400 the remainder would be at either 10% first £2230 or 22% between £2,230 & £34,601.

You will get tax relief on pension contributions but not on standard share contributions ie SAYE schemes. Also note that you will only get 40% tax relief on the pension contributions on earnings in the 40% bracket then you will move down to the next rate of 22% for relief.

This link may help you work it out. http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4015566

pennine

Many thanks for both replies. Unfortunately there is a link within the link that does not work, and that is the bit I need about non taxable income. My tax code is 518L as I owe tax from last year due to interest on savings and I'm hoping to get away from it this year hence my AVC plan. My last pay slip showed a year to date earnings of £37710 and a Taxable GR of £36232. My share scheme is a company scheme whereby I buy 1 share and they buy me 2. I also top this up to £125 per month which is the maximum we can contribute. The pension scheme is again a company pension contracted out from serps. I will be taking advice from an independant financial advisor next week hopefuly, but I am just trying to get my head around it all in advance.

jem16

pennine wrote: »

Many thanks for both replies. Unfortunately there is a link within the link that does not work, and that is the bit I need about non taxable income.

Is this the link you want?

http://www.hmrc.gov.uk/leaflets/ir121.pdf

pennine

It may well be Jem, but for some reason I cannot open the page

jem16

Copied and pasted from link;

Non Taxable


State benefits
Disability Living Allowance
Attendance Allowance
Lump sum Bereavement Payments
Pension Credit
Free TV licence for over 75s
Winter Fuel Payments
Housing Benefit
First 28 weeks of Incapacity Benefit

Interest on Savings
All ISAs and PEPs
Savings Certificates
Premium Bonds

Rents
First £4,250 from a lodger
(£2,125 if split between a couple)
Tax Credits
Working Tax Credit

lowbrim

Pennine, Hi you will not get tax relief on the shares you are buying so the only tax relief you will get is on your pension contributions and as that is taken out at source ie by the company you work for then this will already be allowed for in your figures. You will get a tax benegfit when you actually get the shares but this wil be outside of SAYE.

If I am reading the figures correctly you will be paying 40% tax on all income from now until the end of the year so if you invest all your earnings in a AVC you will get full 40% tax relief but dont invest just to save 40%. Is the financial advisor independant ie not tied to a Bank of Building society etc they should be avoided at all costs in my view they. If you get a true independant advisor they should show you commissions etc they get from products they advice you on.

Also make sure AVC's are right for you. Yes you get 40% tax relief but you pay tax on the income when you come to draw on it especially if you already have a good pension scheme. If it is a final salary scheme will the company let you buy back years if so this is a much better option.

On the tax breaks ets just put tax bands in google and that will take you the HMRC link

jem16

You may find that making contributions to a personal pension rather than AVCs might be a better option - this is what I'm doing. This option may give you more flexibility as it's not attached to your company pension and may mean that you can take it early or leave it to still grow after taking your company pension.

What lowbrim says about being taxed on the pension when you take it is quite correct. However if you are a higher rate taxpayer now but won't be in retirement than you are winning.

lowbrim

Jem 16 You can still do this with AVC's. In fact it gives you more flexibility to do it this way than with FSAVC (Personal Pension). With AVC'S you can normally lump them into your company pension on retirement or go your separate ways as you would with a FSAVC.

To be fair I had the same view as you until I came to retire and then found the company I worked for would take AVC'S into there scheme and give me far better rates than on the open market but would not touch FSAVC contributions. What I thought was a shrewd move turned into not such a good move afterall. This is why I suggested buying back years especially if it is final salary scheme as that was it is inflation proofed as well and if you get promotion or big pay rises it goes up again.