Pay & File Deadline: Pension Contributions & Tax Relief

In recent Budgets, the Government have sought to reduce and in some instances, eliminate the availability of tax reliefs and other incentives previously offered by Revenue.

With regard to tax relief on pension contributions the earnings cap that applies to the age-related limits for tax relief on pension contributions has been reduced downwards from €275,239 in 2008 to €115,000 today.

Still Time to Make a Pension Payment to Reduce your 2016 Income Tax Liability

Pension contributions made before October 31st, 2017 can still be backdated to 2016 for income tax relief purposes at the taxpayer’s highest rate. But, once this date has passed the opportunity to claim this relief may be lost.

This applies to all clients, whether they are members of a PAYE Umbrella, Director Umbrella, have their own Personal Limited Company or are Sole Traders.

Historically, Revenue have extended the payment deadline to the 13th November in line with the extended online income tax return filing deadline but most pension providers are imposing their own deadlines on these contributions with most insisting that any contributions be paid well in advance of the 31st of October (e.g. Irish Life have informed us that they will not guarantee that any contributions received after the after the 26th October will be processed to comply with backdating for 2016).

From a tax point of view, if you are paying tax at the higher rate, currently 40%, then the tax saving of making qualifying pension payments is also at 40%. That is for every €100 qualifying contribution your income tax bill will be reduced by €40.

Note: This is the tax relief on entry only. It is important to look at the tax situation in accessing the money in retirement.

Tax relief on pension contributions is subject to two main controls:

  1.  Age Related Control

This provides that the maximum pension contribution an individual can make on which they will receive tax relief may not exceed the relevant age-related percentage of the individual’s remuneration/net relevant earnings in a year.

Age Band      Limit of remuneration/Net relevant earnings
Under 30         15%
30 – 39             20%
40 – 49             25%
50 – 54             30%
55 – 59             35%
Over 60           40%

2. Earnings Limit

The second control places an overall limit on the amount of remuneration/net relevant earnings that may be taken into account for the purpose of claiming tax relief.

For 2017, this limit is set at €115,000 and applies whether an individual is contributing to one or more pension products.

If you’d like more information please contact me at 01-2966120 or icon@rockwellfinancial.ie

Robert Whelan BComm, QFA

Managing Director

Rockwell Financial Management

www.rockwellfinancial.ie