Higher rate tax & AVC’s

[Happinessislikeabutterfly]

Hi, I am just trying to get my head around something and if someone could explain in simple format that would be great. Thank you.

if someone earns £60,000 so therefore in the 40% (threshold is 50,270 for tax bracket) paid 10,000 into there pension as AVC (it comes out before tax at source from earnings), would they basically saving 40% tax on this full amount in effect?

If the same person put £20,000 AVCs is that also at 40% saving or would some of it (around 10,000) be a saving at 20% and the other £10,000 be 40% saving on tax?

Thanks for any explanations on this.

Yep. Although may need to pay NICs under new rules.

Income tax calculator

When you pay AVCs it isn't included in your taxable income so yes, effectively anything over £50,270 into your pension you no longer pay 40% tax and anything below £50,270 you no longer pay 20% tax.

So if earning £60K you put £0 in your pension you pay £14,639 income tax and NI.

But if earning £60K but putting £20K in your pension you pay £8,694.79 income tax and NI.

Thank you so much for taking the time to respond both, really helpful.