Is now a good time to cash in my AVCs? I’m 65, retired teacher.
09 January 2023
Question by Joy
Is now a good time to cash in my AVCs? I’m 65, retired teacher. Not dependent on income from AVCs. Have about £160,000 in that pot.
Thanks for your question, which might seem simple on the face of it but it really all depends on your individual circumstances. However, here are a few pointers that you should consider:
- Tax - the default position is that 25% of your pot is tax free and the rest is taxable at your marginal rate. So if this applies to you then you would be paying tax on £120,000, potentially pushing you into the highest tax rate if you already have a taxable income. Although, having said this, if you haven't yet taken your main scheme pension, you might be able to take the whole amount as tax free.
- Markets - if your AVCs have been exposed to stock markets this year, then they will have probably fallen. At the moment this is a 'paper' loss, but if you cash in your AVCs now, you will crystallise this loss.
- Inheritance Tax (IHT) - is this a concern to you? If you have an estate that is liable to IHT or near to the point where you start paying it, then your AVCs will count towards your taxable estate if you cash them in. If they stay within the AVC wrapper then they are free of IHT.
It's probably a good idea to speak to an Independent Financial Adviser / Planner to talk through your individual circumstances and objectives so that they can advise you what's best to do.