AVC to offset 2015 Tax

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PaddyM

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Hi...I am considering making an AVC of about 6.5k to offset a tax bill from rental income of about 2.8k. Does anyone have advice on whether this is really tax efficient. The reading i have done suggests that you maybe able to take a portion of the AVC out as part of a tax free lump sum on retirement (if contributing around 6k for next 25yrs then this this is quite a small %). The rest then would be subject to tax at the marginal rate. Am i right to say this?
Appreciate any help.
 
Firstly, rental income itself is not "pensionable" (being considered as "unearned income"). So if you want to invest €6.5k as an AVC it must be within the overall % limit of pensionable income (e.g. salary from employment).
The "tax efficiency" of pension contributions is based on:
- tax relief on the way in (up to 40% relief)
- gross build up within the fund (i.e. tax-free investment growth)
- facility to take part of the fund potentially tax free at retirement (based on current tax rules)

Any balance remaining after the tax-free lump sum must be used to provide an income in retirement (the pension) and thus is potentially taxable then.
If you are looking at an AVC then presumably you are currently a member of an occupational pension scheme?
 
Hi Conan...appreciate your reply. Yes I am a PAYE worker in a works pension scheme. Would you know if all the investment growth is tax free or what % of a fund can be taken as a tax free lump some? Appreciate any help, i tried googling but found it difficult to get the answers.
 
All growth within an approved pension scheme, including AVC fund, is tax free up to retirement.
At retirement part of the overall pot (scheme plus AVC) can be taken as a lump sum. The amount of the lump sum depends on a number of factors. Under current rules, the first €200,000 is tax free.
What type of works scheme are you in? Is it Defined Benefit or Defined Contribution?
 
Under current rules, on retirement you can get a retirement lump sum of up to 150% of Final Salary. So assuming you remain in a DB scheme to retirement, the AVC fund must be used either to:
- buy an additional annuity at retirement (assuming your DB scheme is not giving you the Revenue maximum pension), and/or
- use some of all of the AVC fund to maximise your retirement lump sum (assuming your DB scheme is not giving you the Revenue max lump sum)

Depending on how long you have to retirement or the type of DB scheme (public or private sector) the rules/ structure could well change in the future. But you need to bear in mind that to invest any AVC you need to have scope in benefit terms, I.e. your scheme is not already providing the absolute Revenue max of benefits (probably unlikely).
 
Thank you Conan for all your help. I think i have it now. AVC's are a good idea in general but when you max out on the revenue benefits (i need to figure out when this will occur) then you would need to consider whether continuing to make annual AVC's is the right thing i.e. another type of investment may be more beneficial.
 
Apologies for piggy-backing on this thread but I reckon that it's related. I'm just wondering if investment in the REITs scheme would qualify to offset a tax bill from rental income?
 
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