Tax relief on AVCs


F

Fred

I have spent a considerable time making searches on the Inland Revenue
website and have come up with a blank.

I need to add years to my pension scheme and need to know the maximum
contributions I can make under the tax relief ceiling. I thought it was 15%
of salary but also thought this increased with age. Can anyone help or
point me in a general direction. Also what happens if I go part time whilst
drawing pension, what are the maximum contributions I can make before losing
tax relief.

Many thanks in advance.
 
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G

Gareth Kitchener

Fred said:
I have spent a considerable time making searches on the Inland Revenue
website and have come up with a blank.

I need to add years to my pension scheme and need to know the maximum
contributions I can make under the tax relief ceiling. I thought it was 15%
of salary but also thought this increased with age. Can anyone help or
point me in a general direction. Also what happens if I go part time whilst
drawing pension, what are the maximum contributions I can make before losing
tax relief.

Many thanks in advance.
15% of salary, irrespective of age. This includes any "normal"
contributions to your scheme. If your earnings reduce, your maximum
contributions reduce proportionately. If your income is a mixture of
pension and earnings, you can only pay AVCs based on the earnings.
 
T

Tim

Fred said:
15% of salary, irrespective of age. This includes any "normal"
contributions to your scheme.
Agreed - but note that if standard scheme contributions are, say, 5% - then
you *might* be able to contribute more than twice this to an AVC :-

Eg if "pensionable salary" is £12,000 -> normal scheme contributions are
£50 per month;
But if "total salary" is £15,000 you can pay upto "15% of £15K -less- 5%
of £12K" ie £137.50 per month.
 
J

John Pointon

Fred said:
I have spent a considerable time making searches on the Inland Revenue
website and have come up with a blank.

I need to add years to my pension scheme and need to know the maximum
contributions I can make under the tax relief ceiling. I thought it was 15%
of salary but also thought this increased with age. Can anyone help or
point me in a general direction. Also what happens if I go part time whilst
drawing pension, what are the maximum contributions I can make before losing
tax relief.

Many thanks in advance.

Firstly, let me apologise for the length of this reply but it is
demanded by the

complexity of the subject matter. My reply is not intended to be
comprehensive nor

definitive and you should acquaint a professional adviser with
specific details of your

situation to obtain advice tailored to your specific circumstances.

The maximum contributions an employee can make to an occupational
pension scheme are

limited to 15% of remuneration for the tax year. Remuneration for
these purposes is

salary, commission, bonuses and taxable benefits-in -kind. Income from
share incentives

schemes and termination payments is excluded.

It is now mandatory for employers to give employees who have a
shortfall between the

contributions they have made and those they could have made, the
opportunity to make good

the deficiency by means of Additional Voluntary Contributions (AVCs)
to either the

employer's scheme or to a freestanding scheme.

The total contributions including AVCs are limited to 15% of
remuneration for the tax

year.

Alternatively, it is open to the employeee make personal pension
contributions to a

Revenue approved scheme and these have slightly different contribution
limits based on net

relevant earnings.

Relevant earnings are are made up of any chargeable income derived
from:-

- an office or employment (other than one covered by an occupational
pension scheme);
- income from a trade, profession or vocation whether as an individual
or as an active

partner within a partnership;
-income from furnished holiday lettings;
-income from patent rights treated as earned income because you were
granted a patent for

your own invention.

Net releavant earnings are the total of relevant earnings less any
expenses of employment,

losses from activities which would have been relevant earnings if a
profit had been made,

the payment of annuities or royalties out of the income.

From 6 april 2001 with the introduction of stakeholder pensions, a
person can make a

contribution (subject to limits) if:

a)- he has actual net relevant earnings for that year; or,
b)- he does not have relevant earnings but is not in pensionable
employmrnt for the entire

year but one of the following applies:
- at some time in the year he is resident and ordinarily resident in
the UK; or,
- he was resident and ordinarily resident both at some time in the
last 5 years and when

the personal pension arrangements were made; or,
c)- where neither a) nor b) applies but he was in pensionable
employment throughout the

year and:
- one of the 2 conditions in b) is satisfied;
-he was not a controlling director of any company at any time during
the year, or in the

preceding 5 years (ignoring those before 2000/01);
-forat least one of the preceding 5 years of assessment (ignoring
those before 20000/01),

his total grossec up remuneration from each office and employment held
on 5 April in each

tax year does not exceed the remuneration limit for the year
(currently £30,000)

From 6 april 2001, all personal pension contributions are treates as
paid after deducting

basic rate tax regardless of whether you are employed or
self-employed. This means if you

are a basic rate taxpayeryou receive the correct amount of tax relief
at source.

In the case of higher rate taxpayers, the gross amount of
contributions is deducted from

relevant earnings and then tax is calculated.

From 2001/02 onwards relief for personal pensions contributions is
given up to a maximum

of the greater of;
- the earnings threshold for the year (currently £ )
- the maximum contributions payable.

The maximum contributions payable are a percentage of your net
relevant earnings according

to your age at the beginning of the tax year, as follows:-

35 and below 17.5%
36 to 45 20%
46 to 50 25%
51 to 55 30%
56 to 60 35%
61 or more 40%

For personal pension schemes, net relevant earnings are subject to an
earnings cap and any

earnings in excess of the cap are ignored. For recent tax years the
cap has been as

follows:-

1993/94 £75,000
1994/95 £76,800
1995/96 £78,600
1996/97 £82,200
1997/98 £84,000
1998/99 £87,600
1999/00 £90,600
2000/01 £91,800
2001/02 £95,400
2002/03 £97,200
2003/04 £99,000

I hope this is of some assistance.







John Pointon
"In business to grow your business"
 
R

robert

I have spent a considerable time making searches on the Inland Revenue
website and have come up with a blank.

I need to add years to my pension scheme and need to know the maximum
contributions I can make under the tax relief ceiling. I thought it was 15%
of salary but also thought this increased with age. Can anyone help or
point me in a general direction. Also what happens if I go part time whilst
drawing pension, what are the maximum contributions I can make before losing
tax relief.

Many thanks in advance.
A couple of points for you to consider. If you are able to buy
additional years, that may well be more cost effective than going down
the AVC route.
Also you may want to look at a stakeholder pension because the
commision you pay will be a lot less than if you buy AVCs.
 
F

Fred

John Pointon said:
"Fred" <support@gatoradvertisinginformationnetwork.com> wrote in message


Firstly, let me apologise for the length of this reply but it is
demanded by the

complexity of the subject matter. My reply is not intended to be
comprehensive nor

definitive and you should acquaint a professional adviser with
specific details of your

situation to obtain advice tailored to your specific circumstances.

The maximum contributions an employee can make to an occupational
pension scheme are

limited to 15% of remuneration for the tax year. Remuneration for
these purposes is

salary, commission, bonuses and taxable benefits-in -kind. Income from
share incentives

schemes and termination payments is excluded.

It is now mandatory for employers to give employees who have a
shortfall between the

contributions they have made and those they could have made, the
opportunity to make good

the deficiency by means of Additional Voluntary Contributions (AVCs)
to either the

employer's scheme or to a freestanding scheme.

The total contributions including AVCs are limited to 15% of
remuneration for the tax

year.

Alternatively, it is open to the employeee make personal pension
contributions to a

Revenue approved scheme and these have slightly different contribution
limits based on net

relevant earnings.

Relevant earnings are are made up of any chargeable income derived
from:-

- an office or employment (other than one covered by an occupational
pension scheme);
- income from a trade, profession or vocation whether as an individual
or as an active

partner within a partnership;
-income from furnished holiday lettings;
-income from patent rights treated as earned income because you were
granted a patent for

your own invention.

Net releavant earnings are the total of relevant earnings less any
expenses of employment,

losses from activities which would have been relevant earnings if a
profit had been made,

the payment of annuities or royalties out of the income.

From 6 april 2001 with the introduction of stakeholder pensions, a
person can make a

contribution (subject to limits) if:

a)- he has actual net relevant earnings for that year; or,
b)- he does not have relevant earnings but is not in pensionable
employmrnt for the entire

year but one of the following applies:
- at some time in the year he is resident and ordinarily resident in
the UK; or,
- he was resident and ordinarily resident both at some time in the
last 5 years and when

the personal pension arrangements were made; or,
c)- where neither a) nor b) applies but he was in pensionable
employment throughout the

year and:
- one of the 2 conditions in b) is satisfied;
-he was not a controlling director of any company at any time during
the year, or in the

preceding 5 years (ignoring those before 2000/01);
-forat least one of the preceding 5 years of assessment (ignoring
those before 20000/01),

his total grossec up remuneration from each office and employment held
on 5 April in each

tax year does not exceed the remuneration limit for the year
(currently £30,000)

From 6 april 2001, all personal pension contributions are treates as
paid after deducting

basic rate tax regardless of whether you are employed or
self-employed. This means if you

are a basic rate taxpayeryou receive the correct amount of tax relief
at source.

In the case of higher rate taxpayers, the gross amount of
contributions is deducted from

relevant earnings and then tax is calculated.

From 2001/02 onwards relief for personal pensions contributions is
given up to a maximum

of the greater of;
- the earnings threshold for the year (currently £ )
- the maximum contributions payable.

The maximum contributions payable are a percentage of your net
relevant earnings according

to your age at the beginning of the tax year, as follows:-

35 and below 17.5%
36 to 45 20%
46 to 50 25%
51 to 55 30%
56 to 60 35%
61 or more 40%

For personal pension schemes, net relevant earnings are subject to an
earnings cap and any

earnings in excess of the cap are ignored. For recent tax years the
cap has been as

follows:-

1993/94 £75,000
1994/95 £76,800
1995/96 £78,600
1996/97 £82,200
1997/98 £84,000
1998/99 £87,600
1999/00 £90,600
2000/01 £91,800
2001/02 £95,400
2002/03 £97,200
2003/04 £99,000

I hope this is of some assistance.







John Pointon
"In business to grow your business"

Many thanks for your reply. I work in local government with no other
income. My income is a little over £30,000.

My understanding from this and other posts is that my contributions are
limited to 15% of my income towards added years.

I am slightly confused by "Alternatively, it is open to the employee make
personal pension contributions to a Revenue approved scheme and these have
slightly different contribution limits based on net relevant earnings." Can
these be made in addition to the maximum AVCs and I presume these
contributions to these funds are not subject to tax relief?
 
T

Tim

Many thanks for your reply. I work in local government with no other
income.
This is the crucial bit - "no other income"


My understanding from this and other posts is that my contributions are
limited to 15% of my income towards added years.
Correct.

I am slightly confused by "Alternatively, it is open to the employee make
personal pension contributions to a Revenue approved scheme and these have
slightly different contribution limits based on net relevant earnings." Can
these be made in addition to the maximum AVCs
You need extra earnings, where you are *not* a member of an occupational
scheme, to be able to pay to a PP.
You cannot be both a member of an occupational scheme *and* pay
contributions to a PP in respect of the same employment.
 
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G

Gareth Kitchener

Tim said:
You cannot be both a member of an occupational scheme *and* pay
contributions to a PP in respect of the same employment.
.... unless you earn less than £30,000 and are not a controlling
director, in which case you can pay up to £3600 to a PP,
 
J

john boyle

Fred said:
I have spent a considerable time making searches on the Inland Revenue
website and have come up with a blank.

I need to add years to my pension scheme
I've snipped the rest because I think the key to best advice here is the
words I have left unsnipped.

What makes you think you NEED to 'add years'?

(BTW, most other posters are addressing AVCs, possibly because of your
heading, but AVCs arent necessarily the same as adding years.)

(BTW2, I HATE AVCS)

(but ADDING YEARS may be a good idea in some circs)

What is your occupation? And do you mind telling us what your salary is?
 
S

Stephen Burke

Gareth Kitchener said:
Yes... five tax years.
Except that the clock only started when the regulations came in a couple of
years ago, I don't think you can take 1998 as the base year ... ?
 
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G

Gareth Kitchener

Stephen Burke said:
Except that the clock only started when the regulations came in a couple of
years ago, I don't think you can take 1998 as the base year ... ?
Sorry... you're quite right. Tax year 2000/2001 is the earliest one
that can be used.
 

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