top of page
  • Writer's pictureMAZ

Can You Take Your AVC as A Tax-Free Lump Sum



Understanding the UK's 2024 Tax-Free Lump Sum Allowances and AVCs

In 2024, the UK tax landscape for pensions, including Additional Voluntary Contributions (AVCs), underwent significant changes. Understanding these changes is crucial for UK taxpayers considering taking their AVC as a tax-free lump sum.


Can You Take Your AVC as A Tax-Free Lump Sum

The Abolition of the Lifetime Allowance

As of April 6, 2024, the UK government abolished the lifetime allowance for pension savings. Previously, this allowance set a limit on the amount you could accumulate in pension benefits over your lifetime before incurring additional taxes. This change was legislated under the Finance (No.2) Act 2023.


New Tax-Free Allowances Replacing the Lifetime Allowance


With the removal of the lifetime allowance, three new allowances were introduced:

  1. Lump Sum Allowance: This allowance is capped at £268,275. It applies to tax-free benefits taken at relevant benefit crystallisation events, such as receiving a pension commencement lump sum or an uncrystallised funds pension lump sum.

  2. Lump Sum and Death Benefit Allowance: Set at £1,073,100, this allowance covers lump sum death benefits and other tax-free benefits paid during an individual's lifetime or on their death.

  3. Overseas Transfer Allowance: Also capped at £1,073,100, this allowance pertains to transfers of pension benefits overseas.


Testing Benefits Against New Allowances


  • Lump Sum Allowance: Tested when taking tax-free benefits like pension commencement lump sums. The sum received is deducted from the £268,275 allowance, and any remaining amount is taxed at the individual's marginal rate.

  • Lump Sum and Death Benefit Allowance: This is tested when someone dies or receives a serious ill-health lump sum. Most tax-free benefits paid during the individual’s lifetime are deducted from this allowance.


What is Additional Voluntary Contributions (AVC)

Additional Voluntary Contributions (AVCs) are extra payments made by individuals to their pension scheme to increase their retirement benefits. They are an optional supplement to a primary pension plan, typically a defined benefit scheme. AVCs allow members to contribute more than the standard contribution rate, with the aim of enhancing their pension pot and, consequently, their income upon retirement. These contributions are invested, and the returns are added to the pension fund. AVCs are particularly common in employer-sponsored pension schemes, such as those for public sector employees or in company pension plans.


Relevance to AVCs

For those who have made Additional Voluntary Contributions (AVCs) through schemes like the Local Government Pension Scheme (LGPS), understanding how to use these contributions in light of the new allowances is vital.

  • Taking AVCs as Tax-Free Cash: Members of schemes like the LGPS can take their AVCs as tax-free cash when retiring. The amount taken must adhere to the limits set by the new tax allowances. Specifically, you can take up to 100% of your AVC as tax-free cash, as long as it doesn't exceed 25% of the total value of your LGPS benefits, including the AVC plan, or exceed £268,275, or 25% of your remaining lifetime allowance if you have already taken some pension benefits.

  • Other Options for AVCs: Apart from taking them as a lump sum, AVCs can be used to purchase annuities, buy a top-up LGPS pension, or buy extra membership in the LGPS (for those who elected to pay AVCs before a certain date).


It's crucial for individuals to seek guidance from services like Pension Wise to make informed decisions about using their AVC plans, especially considering the significant changes in tax legislation.


In conclusion, the changes in 2024 have redefined the way tax-free lump sums, including AVCs, are treated in the UK. Understanding these new allowances and how they apply to your pension and AVCs is essential for making the most beneficial financial decisions.


Navigating AVC Options and Tax Implications in 2024

In this section, we'll explore how to navigate the options for taking Additional Voluntary Contributions (AVCs) in the UK, considering the tax changes effective from April 2024.


Options for Using AVCs


  1. Tax-Free Cash: As established, AVCs can be taken entirely as tax-free cash, subject to the new allowances. This is a significant benefit for those looking to maximize their lump sum withdrawals at retirement.

  2. Annuities: AVCs can be used to purchase annuities, providing a regular income post-retirement. The amount received depends on various factors, including age and the chosen annuity's terms.

  3. Top-Up LGPS Pension: For members of the LGPS post-March 2014, AVCs can be used to buy additional LGPS pension, which increases with inflation and provides for dependents.

  4. Extra LGPS Membership: For those who started AVCs before November 2001, they can use their AVCs to buy extra membership in the LGPS, enhancing their pension benefits.

  5. Defer Taking AVCs: Members who left the LGPS before April 2014 have the option to defer their AVCs, which impacts the ability to take them as tax-free cash.


Tax Implications and Considerations

The tax treatment of AVCs is significantly influenced by the new allowances introduced in 2024. Understanding these implications is key to making informed decisions:

  • Within Allowance Limits: The total tax-free lump sum (including AVCs) should not exceed the lower of £268,275, 25% of the total LGPS benefits, or 25% of the remaining lifetime allowance if other pensions have been taken.

  • Marginal Rate Taxation: Amounts exceeding the allowances are subject to taxation at the individual’s marginal rate. This necessitates careful planning to optimize tax efficiency.

  • Lifetime Allowance Protections: Those with existing lifetime allowance protections may have higher allowances, impacting the tax-free amount they can take.


AVCs and Flexible Retirement

AVCs also play a role in flexible retirement scenarios:

  • For Pre-2001 AVC Contributors: Upon flexible retirement, the AVC plan must be used in one of the described ways.

  • For Post-2001 AVC Contributors: There is flexibility to take all or none of the AVC plan upon flexible retirement.


Legal Requirements and Guidance

It's mandatory to seek guidance from Pension Wise or declare the decision to forego it before proceeding with AVC options. This legal requirement ensures informed decision-making.


The tax landscape in 2024 presents both opportunities and complexities for individuals with AVCs. Understanding the available options, tax implications, and legal requirements is crucial for making decisions that align with personal retirement goals and financial circumstances.


So Can You Take Your AVC As New Tax-Free Allowances in the UK?

Yes, in the UK, you can take your Additional Voluntary Contributions (AVC) as a tax-free lump sum under the new tax allowances introduced in 2024. Specifically, if you take your AVC at the same time as your main pension benefits, you can opt to take up to 100% of it as tax-free cash. This is subject to the condition that the total lump sums do not exceed 25% of the total value of your pension benefits, including the AVC, £268,275, or 25% of your remaining lifetime allowance if you have already taken some pension benefits.


AVC Allowance Calculator

Optimizing AVC Utilization and Tax Strategy in the 2024 UK Pension Landscape

In this final section, we focus on strategies for optimizing the use of Additional Voluntary Contributions (AVCs) in light of the 2024 UK pension tax changes. This guidance aims to help UK taxpayers make the most of their retirement savings while minimizing tax liabilities.


Strategic Considerations for AVC Utilization


  1. Balancing Lump Sum and Income: Given the new allowances, it's crucial to balance taking a tax-free lump sum with receiving a regular income. This balance will depend on individual retirement needs and tax implications.

  2. Lifetime Allowance Protections: For those with existing protections, understanding how these interact with the new £268,275 lump sum allowance is essential. Higher personal allowances can significantly influence how much can be taken tax-free.

  3. Managing Tax Bands: Taking large lump sums could push you into a higher tax band. Therefore, it might be more tax-efficient to spread withdrawals over several years, especially if you have other income sources.

  4. Estate Planning: Consider the impact of your decisions on inheritance. Some options, like buying an annuity, may not provide for inheritance, whereas others might.


Flexible Retirement and AVCs


For those considering flexible retirement, understanding how AVCs can be used is crucial:

  • For those with AVCs post-2001: There is an option to defer taking AVCs, which could be advantageous depending on personal circumstances and market conditions.

  • For those with AVCs pre-2001: The AVCs must be used at the time of retirement, so planning ahead is key.


Seeking Professional Advice

Given the complexity of these decisions, especially with the 2024 tax changes, seeking advice from a financial advisor or a service like Pension Wise is highly recommended. They can provide personalized guidance based on individual circumstances.


Navigating the UK's pension landscape in 2024, especially regarding AVCs, requires a thorough understanding of the new tax allowances and how they apply to individual retirement plans. By carefully considering the options for using AVCs, managing tax implications, and seeking professional advice, UK taxpayers can make informed decisions that optimize their retirement savings and minimize tax liabilities.


This comprehensive overview of the AVC utilization under the new tax regime in the UK aims to assist individuals in making the most beneficial financial decisions for their retirement. Remember, every individual's situation is unique, and personalized advice is always the best course of action.


How Can a Personal Tax Accountant Help You With Additional Voluntary Contributions (AVCs) Management

How Can a Personal Tax Accountant Help You With Additional Voluntary Contributions (AVCs) Management

When it comes to managing Additional Voluntary Contributions (AVCs) in the UK, a personal tax accountant can be an invaluable resource. Their expertise and guidance can ensure that you maximize the benefits of your AVCs while remaining compliant with tax laws and regulations.

  1. Tax Compliance and Maximizing Benefits: A personal tax accountant ensures that you are tax compliant and helps you avoid any unexpected bills. They can provide advice on various tax aspects, including income tax, inheritance tax, capital gains, and trusts, ensuring you benefit from any claims available (Smooth Accounting).

  2. Expertise in Complex Tax Laws: Tax laws, especially those pertaining to pensions and investments like AVCs, can be intricate and constantly evolving. A personal tax accountant stays abreast of these changes and can advise on how to minimize your tax liabilities while maximizing the benefits of your AVCs (

  3. Strategic Financial Planning: Personal tax accountants can assist in creating tax strategies and planning your financial future, which is especially important when it comes to retirement planning and making the most of your AVCs (

  4. Detailed Tax Calculations: They can carry out detailed computations to calculate your tax liability, which includes considering the impact of AVCs on your overall tax situation (

  5. Estate Planning and Trusts: Accountants can provide guidance on estate planning and setting up family trusts, which can be crucial if you’re looking to use your AVCs as part of your estate planning (

  6. Assistance with Tax Returns: Personal tax accountants handle the preparation and submission of tax returns to HMRC, a process that can become complex if you have multiple sources of income, including AVCs (Smooth Accounting).

  7. Advice on Indirect Taxation: They can also offer guidance on indirect taxes like VAT and other environmental taxes, which can be relevant depending on your overall financial situation (

  8. Handling Self-Assessment Tax Returns: For those who are self-employed or have multiple income sources, including AVCs, personal tax accountants can assist with self-assessment tax returns, ensuring accuracy and compliance (

  9. Capital Allowances and Business Expenses: If you’re self-employed, they can advise on business expenses and capital allowances, which could affect your taxable income and, consequently, the tax-efficiency of your AVCs (

  10. National Insurance Contributions: Accountants can help calculate NI contributions accurately, a factor that might be important for self-employed individuals with AVCs (


In summary, a personal tax accountant offers a range of services that can greatly benefit individuals with AVCs. From ensuring compliance and strategic tax planning to providing advice on complex taxation issues, their role is crucial in helping you navigate the intricacies of tax laws and optimize your financial planning for retirement.



1. Q: How do I start making Additional Voluntary Contributions (AVCs)?

A: To start making AVCs, you need to join an AVC scheme offered by your primary pension provider. Contact your pension administrator or HR department for the specific process and forms required.


2. Q: Are AVCs subject to any investment risks?

A: Yes, like most pension investments, AVCs carry investment risks. The value of your investment can go up or down depending on market conditions.


3. Q: Can I change the amount I contribute to AVCs?

A: Typically, you can adjust your AVC contributions, but this depends on the rules of your specific AVC scheme. Check with your pension provider for details.


4. Q: Is it possible to transfer AVCs to another pension scheme?

A: Transferring AVCs to another pension scheme may be possible, but it depends on the terms of your AVC scheme and the receiving scheme's rules.


5. Q: How are AVCs treated in the event of my death before retirement?

A: In case of death before retirement, your AVCs are usually paid as a lump sum to your beneficiaries. The exact treatment depends on the rules of your AVC scheme.


6. Q: Can AVCs impact my entitlement to state benefits?

A: AVCs might impact your entitlement to certain means-tested state benefits. It's advisable to consult a financial advisor for specific advice.


7. Q: Are there any limits on how much I can contribute to AVCs?

A: There may be limits based on your earnings and the pension scheme rules. The annual allowance and lifetime allowance limits also apply.


8. Q: Can I use AVCs to purchase a property?

A: No, AVCs are intended for retirement savings and cannot be directly used to purchase property.


9. Q: What happens to my AVCs if I change employers?

A: If you change employers, your AVCs can remain with your old scheme until retirement, or you may have the option to transfer them.


10. Q: How does inflation affect AVCs?

A: Inflation can affect the purchasing power of your AVCs at retirement. Some AVC plans offer inflation protection, but this varies by scheme.


11. Q: Can I access my AVCs before the usual retirement age?

A: Early access to AVCs is generally not allowed, except in specific circumstances like serious ill-health.


12. Q: Do AVCs offer any tax benefits?

A: Yes, AVCs offer tax benefits. Contributions are made from pre-tax income, which can reduce your taxable income.


13. Q: What are the fees associated with AVCs?

A: AVCs may have administration and management fees. These vary depending on the provider and the investment choices.


14. Q: Can I stop paying into AVCs?

A: Yes, you can usually stop paying into AVCs, but you should check the specific rules of your AVC scheme.


15. Q: How do I track the performance of my AVC investments?

A: Most pension providers offer online tools or regular statements to track the performance of your AVC investments.


16. Q: Can I make lump sum contributions to AVCs?

A: Some AVC schemes allow lump sum contributions. Check with your scheme for availability and rules.


17. Q: Are there different types of AVCs?

A: Yes, there are different types, including Free-Standing AVCs (FSAVCs) and In-House AVCs. Each type has its own features and rules.


18. Q: How do AVCs affect my pension tax relief?

A: Contributions to AVCs qualify for tax relief within certain limits, which can enhance the tax efficiency of your retirement savings.


19. Q: Can I manage the investments within my AVCs?

A: This depends on the AVC scheme. Some schemes allow you to choose and manage your investment options, while others are managed for you.


20. Q: What should I consider when choosing an AVC scheme?

A: Consider factors like investment options, fees, flexibility, performance history, and how the scheme aligns with your retirement goals.






215 views0 comments


bottom of page