Wise to increase AVCs above the tax benefit limit ?

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coolaboola12

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Hi All

Is it ever a good idea to pay AVCs above the tax relief limit into your pension ? It still has no CGT but does it get taxed at 40% on the way in and again at 20% on the way out ?
 
You don't get tax relief on the excess over you age related limit on the way in so it's taxed at your marginal rate. You may be able to claim tax relief in future years though. What tax applies at drawdown depends on your total income in retirement.
 
ClubMan said:
You don't get tax relief on the excess over you age related limit on the way in so it's taxed at your marginal rate. You may be able to claim tax relief in future years though. What tax applies at drawdown depends on your total income in retirement.
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hmm ok thanks so is it ever a good idea then ? for example would it be better to contribute over the age related limit as opposed to investing the same amount of taxable income in a zurich investment fund
 
Thats interesting, How do you "roll forward" the excess amount ? Do you have to declare it to Revenue each year ? How do you claim it in future years ? Is this somewhere on the Form 11 ? Is there a Revenue (or other) link describing in more4 detail how this works in practice.

Many thanks
 
@meadow
On Form 11 the exact question depends on the pension type, but there should be a section for it named something like: "Amount paid in a prior year, for which relief has not been obtained"

The OP here is a form 12 filer so it's a bit easier.
 
coolaboola12 said:
pay AVCs above the tax relief limit into your pension ? It still has no CGT
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This accurate.....as in excess pension contribution (that do not attract tax relief) can be placed into a pension vechicle and while in there they can grow without any tax interruptions......CGT, dividend tax.....and the only tax due is at the point of withdrawal?
 
There is somewhat of an arguement to be made, for overpaying AVC’s above your age related limit, circumstances dependant of course.

Back of an enevlope calculation:

If you have say €500 per month of net pay to spare, and you get say 3% pa after DIRT, in a deposit account, but that same amount, gets “might” get a return of 6% if it was in a pension fund, and also increases your TFLS accordingly, so only 75 % is subject to tax,(if under 200k tfls limit) and over time, that higher growth, cumalated would potentially, be worth more, than if left in a deposit account.

It is more relevant to those who have smaller Pension Pots, which won’t ever be subject to the 40 % tax rate.
 
fayf said:
There is somewhat of an arguement to be made, for overpaying AVC’s above your age related limit, circumstances dependant of course.

Back of an enevlope calculation:

If you have say €500 per month of net pay to spare, and you get say 3% pa after DIRT, in a deposit account, but that same amount, gets “might” get a return of 6% if it was in a pension fund, and also increases your TFLS accordingly, so only 75 % is subject to tax,(if under 200k tfls limit) and over time, that higher growth, cumalated would potentially, be worth more, than if left in a deposit account.

It is more relevant to those who have smaller Pension Pots, which won’t ever be subject to the 40 % tax rate.
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But it would be better to invest this 500 in an investment trust every month instead of the pension as the expected return might be higher than 3%?
 
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