The tax treatment of additional voluntary contributions
Produced in partnership with Charles Russell Speechlys LLP
The tax treatment of additional voluntary contributions

The following Pensions practice note produced in partnership with Charles Russell Speechlys LLP provides comprehensive and up to date legal information covering:

  • The tax treatment of additional voluntary contributions
  • Background: what are additional voluntary contributions, and why distinguish them from other contributions?
  • Historic background to the tax rules on AVCs
  • AVCs under the registered pension scheme regime applying from 6 April 2006
  • No requirement to allow AVCs
  • Tax relief on AVCs
  • Restrictions on amount of AVCs: the annual allowance
  • Restrictions on amount of AVCs: recycling tax free cash
  • Restrictions on benefits derived from AVCs: the lifetime allowance
  • Taking AVCs as cash
  • More...

The tax treatment of additional voluntary contributions

THIS PRACTICE NOTE APPLIES IN RELATION TO OCCUPATIONAL PENSION SCHEMES

Background: what are additional voluntary contributions, and why distinguish them from other contributions?

Additional Voluntary Contributions (AVCs) are contributions paid by members of occupational pension schemes which are not required under the scheme rules and which therefore entitle the member to benefits which are additional to the basic benefits provided by the relevant pension scheme. The form of the benefits derived from the AVCs depends on the rules of the scheme. They can be additional defined benefits (often called 'added years') but in most cases AVC benefits will accrue on a money purchase basis.

The contributions, and the benefits provided in respect of them, are treated as being in a separate category from the normal contributions and benefits for a number of purposes. In some areas this has led to more restrictive treatment than for other benefits; in others more favourable rules apply.

In particular, funds derived from AVCs have been treated differently from other scheme assets on a winding up of the pension scheme. This reflects the fact that not all members have paid them, and that the benefits are often related only to the extra member contributions (ie without any employer funding): it was felt that AVC benefits should therefore normally be entitled to greater security and a higher rank

Popular documents