Tax relief for pension contributions

Tax relief for pension contributions

Generous tax relief is available for personal contributions to your pension plan.  Based on your age you can contribute a certain percentage of your earnings and this reduces the amount of tax you pay.

Managing your tax liability through pension contributions.

Most people are aware of this but there is another feature of pension relief which is often overlooked. If you’re self-employed persons or not a member of a company pension plan then you can make a pension contribution after the end of the tax year and reduce the tax you pay for the previous tax year.

For example, the tax return filing date for 2016 is 31/10/2017 (or 14/11/2017 if filing and paying by ROS). If you pay a pension contribution before 31/10/2017 you can include this in your 2016 tax return, reducing the income tax you pay by at least 20% of your pension contribution.

This can be a very effective planning tooling in managing your tax liability for 2016. Let say you are a 50 year old and your accountant/ tax advisor informs you that you owe income tax of €5,000 for 2016. The tax he tells you must be paid by 14/11/2017 to avoid interest and penalties. Assuming you haven’t already made the maximum contribution to your pension plan based on your age, you can make a contribution of up to 30%  of your income. You could decide to make a single pension contribution of €10,000 before the 14/11/2017. The contribution will reduce your tax due for 2016 by at least €2,000 ( €10,000*20%). If you pay tax at 40% the saving your saving would be even greater at €4,000.

In summary, you will have saved at least €2,000 in tax. The end result is that your pension investment has only cost you €8,000 (€10,000-€2,000) but you will have a pension investment of €10,000 working for you until retirement. 

How much of your pension can you get tax relief on?

If you are aged between 30-39 years you may contribute 20% of your wages or your profits from self-employment to your pension plan. The amount paid reduces your income subject to tax.

If aged between 40-49 years you may contribute 25% of their earnings from employment or self-employment

If aged between 50-54 years you may contribute 30% of their earnings from employment or self-employment

If aged between 55-59 years you may contribute 35% of their earnings from employment or self-employment

If aged 60 years or older you may contribute 40% of their earnings from employment or self-employment

For anyone under 30 years they may contribute 15% of their earnings from employment or self-employment

For example, a contribution of €10,000 paid by a 35 year old will mean a minimum tax saving of €2,000.


If you require assistance on pension contributions or any other area of taxation please contact C. McFadden & Co. t/a the Tax Man.




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