AVC question

M

malcolm72p

Guest
I'm new here so I hope this is the right place.

I'm 50 and planning to retire in 5 years.

I've been saving AVC's in my company scheme for a while and I am allowed to take them out as a cash lump sum when I retire. Currently, they are gaining 10% interest per year.

My question is this.

If I raised say £30,000 on my house and paid interest only (6% ish) and then paid the money into my AVC fund, I'd get 40% tax back plus the interest generated by the scheme. So, after 5 years, I should have way more in my hand than I owe back to the mortgage company.

Am I being stupid or is this a good saving plan?

Thanks
M
 
I suspect that a moderator will move this to the Pensions forum.

There are limits as to the maximum tax-free lump sum you can withdraw from your pension scheme. There are also limits on how much you can put in - 30% of earnings this year (as you're 50) inclusive of existing personal contributions and AVCs.

What you suggest is theoretically possible BUT first you need to check with the pension scheme consultants (a) what your maximum tax-free lump sum will be at age 55 and (b) what your maximum AVC is.

As an aside, just because your pension fund may have grown by 10% per year in recent years, there's no guarantee that it will continue to do so.
 
Malcolm - I like the way you think. I'm no expert here but it strikes me that the 40% tax back you talk about is the fact that you can deposit Gross Income into your pension/AVC and avail of the tax benefits.

I'm not so sure that you will get this if you deposit a lump sum borrowed from a financial institution as it won't be deemed to be income. Does this make sense or am I missing the point totally?

All the best.

malcolm72p said:
If I raised say £30,000 on my house and paid interest only (6% ish) and then paid the money into my AVC fund, I'd get 40% tax back plus the interest generated by the scheme. So, after 5 years, I should have way more in my hand than I owe back to the mortgage company.
M
Click to expand...
 
Malcolm,

As far as I know, you can only get tax paid back. I mean, if you borrow 30k from wherever and pay this into a pension fund, unless you have a tax liability in the year, you will not get a refund. The loan will just be displacing earned taxable income, be it PAYE or self assessed. You can only get tax back that you have actually paid/incurred.

Slim
 
galwegian44 said:
I'm not so sure that you will get this if you deposit a lump sum borrowed from a financial institution as it won't be deemed to be income. Does this make sense or am I missing the point totally?
Click to expand...

If your contribution is permissible under Revenue and scheme rules, it can be paid from borrowed money if you wish and you'll still attract tax relief on it.
 
Slim said:
As far as I know, you can only get tax paid back. I mean, if you borrow 30k from wherever and pay this into a pension fund, unless you have a tax liability in the year, you will not get a refund. The loan will just be displacing earned taxable income, be it PAYE or self assessed. You can only get tax back that you have actually paid/incurred.
Click to expand...

This is correct. In order to attract tax relief at the higher 41% rate on a €30,000 contribution, you'd need to have at least €30,000 of your income that would otherwise be taxable at 41%.
 
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