AVC annual lump sum or monthly through payroll

Discussion in 'Pensions' started by gebbel, 13 Mar 2019 at 11:36 AM.

  1. gebbel

    gebbel Frequent Poster

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    I have paid a lump sum into an AVC this last 2 years, mainly to offset some tax payable on a rental property but had wanted to start some anyway, so a double benefit of building a better pension while reducing a tax liability seemed logical. If I was to do this regularly through payroll instead of a lump sum, does it make any difference to anything? I asked payroll at work but was left confused hence my asking here. I understand this may be more a tax question than a pensions one, so I may be in the wrong forum.
     
  2. rob oyle

    rob oyle Frequent Poster

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    If you pay (say) €1,200 into you pension in a single payment (via payroll) or you pay in €100 a month line line with your frequency of pay, there are no tax implications... this would be more of a cashflow issue for you. A single one-off payment would be slightly more work for the Payroll department too, but nothing they shouldn't be able to handle!
     
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  3. Zebedee

    Zebedee Frequent Poster

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    Agreed. I do it and never had a problem.

    The tax relief allowance is a percentage of earned income so you wouldn’t take into account your rental income in the calculation.
     
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  4. gebbel

    gebbel Frequent Poster

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    Just to clarify, when I say lump sum I meant from my own bank account just before the end of the tax year, nothing to do with payroll. Does that change anything?
     
  5. RedOnion

    RedOnion Frequent Poster

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    Just you can't claim the tax refund until after year end, whereas through payroll they deduct gross pay.
     
  6. Feemar5

    Feemar5 Frequent Poster

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    If you pay every month through payroll you will get tax relief automatically every month - you would need to know how much cash you need to pay the tax due on your rental income, it might suit you better to pay a lump sum for AVC and use your tax reduction to put towards whatever is due on your rental rather than get more cash in your net salary monthly.
     
  7. DCD

    DCD Frequent Poster

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    Just to seek a little clearance on posts above.
    Say all my earned PAYE income is payed at the lower rate of tax. My rental income (non earned income) then pushes me into the high rate of tax.
    Should I choose to make an AVC lump payment for the amount of rental income taxed at higher rate when I submit my tax return do I get relief at the higher rate or the lower rate. Hope that makes sense.
     
  8. RedOnion

    RedOnion Frequent Poster

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    @DCD
    Interesting question.
    Even though the gross amount you can get relief on is based on your earned income, the relief is at you marginal rate.

    If you pay AVC through payroll, you get 20% relief. However you're left with a portion of your lower rate band to use up with rent income, so you pay lower instead of higher on that bit, giving you your full relief.
     
  9. gebbel

    gebbel Frequent Poster

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    I prefer not to commit monthly to an AVC payment, instead see what I can afford before the deadline for tax returns, and lodge what I can then.