The tax charge on the repayment by occupational pension schemes of surplus employee additional voluntary contribution funds will be reduced from 33 per cent to 32 per cent with effect from 6 April 2000. (SI No.600 2000)
1. Additional voluntary contributions (AVCs) are a means by which members of occupational pension schemes may boost, within certain limits, the overall retirement pension they will receive. AVC payments may be made to an employer’s pension scheme or a separate AVC scheme.
2. Where, as a result of paying AVCs, the total benefits for the scheme member would exceed tax approval limits, the scheme administrator will return the surplus AVC funds, after deducting a special tax charge at the rate of 33 per cent. This charge broadly recoups the tax reliefs given on the AVC contributions and their investment return.
3. The scheme member (or their personal representatives if the surplus AVCs are being repaid after the death of the scheme member) is deemed to have received the payment net of basic rate income tax. So, as a consequence of basic rate income tax being reduced to 22 per cent from 6 April 2000, the special tax charge on surplus AVC payments is being correspondingly reduced, by Treasury Order, to 32 per cent from that date.