The good news…

You can reduce your 2013 Final Tax liability and your 2014 Preliminary Tax liability by making contributions to a Personal Pension plan or to a PRSA plan by 31st October 2014 (or 13th November 2014 for ROS users) and electing to backdate the tax relief to 2013.

Example:

 John is self-employed, aged 45 years, and his Net Relevant Earnings for 2013 were €80,000. He has paid €18,000 Preliminary Tax in 2013 and his total tax bill for 2013 is €25,000. This leaves him owing €7,000 for 2013. He does not currently pay pension contributions.

The two scenarios below show just how a lump sum pension contribution can save John lots of money!

Scenario 1 (No Pension Contribution)

Balance of tax due from 2013 is €7,000 (i.e. €25,000 less €18,000) 

Preliminary Tax due for 2014 is €25,000 (i.e. 100% of 2013’s Final Liability)

Total tax due on the 31 October is €32,000

 

Scenario 2 (After Pension Contribution)

Before 31st October 2014, John makes a €20,000 Pension Contribution and backdates the tax relief to 2013.

Actual Tax Bill for 2013 reduced to €16,800 i.e. the total Tax Bill for 2013 of €25,000 less tax relief of €8,200 {41% on the pension contribution of €20,000} However, €18,000 Preliminary Tax was paid already in October 2012. Therefore, a refund of €1,200 is due from the Revenue.

Preliminary Tax due for 2013 is reduced to €16,800 (i.e. 100% of 2013’s final liability).

Total tax due on the 31 October is €16,800 – €1,200 refund = €15,600 (and €20,000 added to you pension)

 

Tax Relief for Employees

John is a 45 year old employee in an occupational pension scheme who paid Income Tax at the 41% rate in 2013. He makes an AVC single premium contribution of €10,000 by October 31st 2014 and informs his local tax office by October 31st 2014 that he wishes to backdate relief on this to 2013. He is entitled to the following refund:

Gross Pension Contribution        €10,000

Tax Refund                               € 4,100

Net Outlay                               € 5,900

The information contained in this document is based in Southeast Financial Services understanding of legislation and Revenue practice as at August 2014 which may change in the future.

Philip Cullen t/a Southeast Financial Services is regulated by the Central Bank of Ireland