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Has anyone any experience of using AVC payments into a employer pension scheme to reduce their tax liability ?
I am considering paying a much larger proportion of my salary from employment into their company AVC scheme to reduce my overall tax thresholds, especially in view of the increasing Sec 24 related liabilities. I'm aware of the situation with regard to maximum annual allowance, taper threshold allowance and carry forward.
In my personal circumstances, my leveraged BTL mortgage interest will via Sec 24 highly inflate this "income" into the 45% bracket. In the medium term properties will be sold to reduce leverage on the overall portfolio; however in the short term I can not see any downside to heavily reducing my employment income via AVC's. I do not wish to re mortgage either residential or investment property in the near term, so I can not see any downside to this tax reduction strategy. Have I missed something obvious ?
Any thoughts on this strategy welcome !
Effectively you are trying to salary sacrifice.
Well the Chancellor intends to stop that little game.
So any AVC would be made from gross salary so you'll be caught by S24.
A better way could be a Season ticket loan
The employer then deducts from your wages before a gross wage is compiled.
Somehow you need to reduce your taxable gross wage.
Use the pension salary sacrifice route mindful that it will be ending soon.
Perhaps your employer could buy you a new car and then reduce your wages by the cost of the car!This tax avoidance stuff isn't so clearcut
But salary sacrifice however achieved is a very effective way to reduce gross income which with S24 is what you need.
Thanks for the reply Paul.
The AVC contribution would be coming from employment income, so maximum tax relief would apply, but NI payments still being made.
Whilst it won't solve the Sec 24 issue, which I know has to be achieved by deleveraging, it will reduce as much taxation at a higher level than I can achieve towards the annual allowance.
I'm sure the Chancellor will be keen to reduce the allowance even more into the future, but I guess you have to do what you can today -to plan for tomorrow !
your on the right track Its along time since I was involved with AVC
but look at what your company can offer you
I also think you can fund a SIPP alongside your work penson but don't hold me to that one
a person who earns a salary can use up to 40k a year into a SIPP
so get some advice from a IFA who specialises in Pension advice
what sort of company pension have you got is it Final Salary or money purchase
If its Final Salary its gold plated today so use it
If its not look at other methods ie sipp or AVC
If S24 makes you pay tax it can help reduceing the tax bill by using pensions
Try and get hold of a book called Pension Magic a very helpful easy to read guid on pensions
Best of luck
Learn Change and Adapt ?????
Thanks for the reply DL.
It's a DB ( final salary ) pension. I already contribute some AVC to purchase additional employer pension, however they also operate an additional AVC ( DC) scheme within the same investment funds and ( low ) charges. The thought is to maximise this Extra AVC scheme via taxable salary for enough years until I can deleverage and reduce the number the mortgaged properties. They will then obviously turnover less, but generate more actual income to me. The workplace AVC fund can then be taken as a 25% tax free lump sum, with the remaining 75% transferred to an external SIPP provider on retirement.
Well you are on the right track
you company pension sounds very good so make the most of it
I am now a little out of touch with company pension and they will have changed
Best of luck with your plans
we all have to think outside the box more and more due to s24
Thank you ! Yes, I'm playing catch up on Sec 24 strategy. I didn't fully appreciate that the music had stopped, and continued to make new purchases up until 2017.
I intend however to be in a safe place in time for Sec24(b) and it's followers ;-)
At least you understand S24 there are huge numbers that don’t and they will have a shock comming
Will employer contribute to outside additional SIPP?
Consider taking more holidays and going part time if profession allows.
Coming soon Investorsk8.com
Wisdom - an integration of knowledge, experience, and deep understanding that incorporates tolerance for the uncertainties of life as well as its ups and downs.
Thought you might find this interesting.
Poll on pensions
until s24 I did not use SIPP very much
since S224 have formed company and I now fund it with every spare penny
life is odd I had so much faith in BTL and I put every penny in BTL from the company
its odd how things work out