Limiting 40% tax exposure

[superpp]

Looking for some advice...

My taxable income has now tipped into the 40% tax bracket and this will get progressively worse.
I'm sure I'm not alone sleep walking into this situation.

My gross income this year will be circa £65400 (salary + BTL income).
I pay the max allowed into my companies DB pension and also their SIP share option, both pre-tax taking my taxable income down to £56600.

Currently 50 years old and would like to retire in 5 or 6 years. Should I put money into AVCs? I know very little about them and wonder if it's too late now.
Is the tax benefit resolved at source or via my tax return.

At the moment I 'save' mostly into S&S ISAs via Vanguard.

[boombang]

superpp said:

Currently 50 years old and would like to retire in 5 or 6 years. Should I put money into AVCs? I know very little about them and wonder if it's too late now.
Is the tax benefit resolved at source or via my tax return.

On AVCs you usually get full tax relief on contribution, check with the scheme. Also do AVCs top up the DB or make up some DC element to your pension(s)? If the former you would need to have a look at the implications.

If you put direct into a SIPP outside of workplace you will get 20% added at or shortly after contribution then have to reclaim remainder via a tax return - that however can help set you up for an ISA contribution if struggling to save otherwise.

Obvious point to note is if you are retiring in 5/6 years you won't be able to touch anything in a SIPP so would need to secure other income - I say that not knowing when you can access the DB. On that basis a balance into ISAs and near cash is worthwhile, noting to beat inflation a pension is likely to be far better notwithstanding any wait to get to it.

Worth bearing in mind you can utilise unused pension allowances where unused from past 4 years - if you have excess each month from salary you can top-up the SIPP and be very tax efficient, again noting lock-in of funds versus your retirement plan.

Personally (depending on position versus lifetime allowance) I would check the transfer value of the DB, friends who have in recent years have been offered huge multiples that mean it made more sense to cash out and pop into a SIPP, as they could likely live of growth and preserve capital for passing down outside of estate - their schemes had low post-death payouts to spouse though so needs careful consideration depending on your specific scheme.

[FriedMarsBar]

Ive just investigating this at present and my understanding is that any additional payments are only 'at source' if they're made via salary sacrifice. AVCs need to claimed back via self assessment with supporting evidence from the provider stating that its gross. I rang the HMRC pensions helpline last week and they were surprisingly quick in answering the call.


I think there's another route to claim the refund or change your tax code other than self assessment.

[nickfrog]

Max out your pension tax relief would be my advice. That should limit your exposure to 20% tax on the bit above the personal allowance.

Particularly useful given your age and proximity to retirement.

[superpp]

thanks all, looks like AVCs are the way to go (even if only for 4 or 5 years).