# Increased Tax Relief on Pension



## caljaclew (11 Jan 2017)

Hi There,

I'm trying to see if i can get my wife higher tax relief on her pension. As it stands she works part time and is taxed at 20% rate. There is a pension scheme where employer pays 15%. If she makes AVC's into work scheme up to her 25% limit her tax relief is still at 20%. 

It would obviously be better to have the tax relief at 40%. If she were to set up an AVC PRSA outside of work and made a contribution in Oct/Nov each year when we are jointly assessed at the higher rate can she then avail of this higher relief rate on the AVCs when filling out our tax return. I'm not sure if this is possible and would appreciate some advice. 

I think however she will be restricted to AVCs into the work scheme, is this correct or can we go along the lines I'm thinking?

Thanks


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## Steven Barrett (12 Jan 2017)

She can't use your income to boost her salary to claim tax relief at 40%. 


Steven 
www.bluewaterfp.ie


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## caljaclew (13 Jan 2017)

SBarrett said:


> She can't use your income to boost her salary to claim tax relief at 40%.
> 
> 
> When you put it like that it makes sense   Thanks for the reply


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## bstop (13 Jan 2017)

If your wife makes AVC contributions she will get tax relief at 20% in her wages.
The AVC contributions will effectively reduce your joint income by the amount contributed.
If your overall joint income is taxed at 40% on an amount greater than the AVC contribution,
then you will jointly save tax at 40% on the AVC.


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## caljaclew (17 Jan 2017)

bstop said:


> If your wife makes AVC contributions she will get tax relief at 20% in her wages.
> The AVC contributions will effectively reduce your joint income by the amount contributed.
> If your overall joint income is taxed at 40% on an amount greater than the AVC contribution,
> then you will jointly save tax at 40% on the AVC.



Hi bstop, Thanks for replying. I'm think I understand your reply. I understand she gets relief at 20% on AVC's and that they reduce our joint income. Is what you are saying simply that by making the AVC we are avoiding 40% tax on that portion under joint assessment ?


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## bstop (18 Jan 2017)

Thats it exactly. Your joint taxable income is reduced by the AVC amount and you save tax at your marginal rate.
If you are taxed at 40% on an amount greater that the AVC amount, you will save tax at 40%. Submit a tax return at the end of the tax year and you will be due a refund.


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## Dan Murray (18 Jan 2017)

bstop said:


> Thats it exactly. Your joint taxable income is reduced by the AVC amount and you save tax at your marginal rate.
> If you are taxed at 40% on an amount greater that the AVC amount, you will save tax at 40%. Submit a tax return at the end of the tax year and you will be due a refund.



I believe this is incorrect. See link below.

http://www.revenue.ie/en/tax/it/leaflets/it1.html#section3


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## bstop (18 Jan 2017)

My statement is correct. Joint taxable income is reduced by the amount of the AVC contribution. This reduction in taxable earnings saves tax at the couple's marginal rate which in this case is 40%. The link posted refers to tax bands and rates and has no bearing on marginal tax.


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## Joe_90 (18 Jan 2017)

It depends if the OP wife earns €30,000 (and has €33,800 Standard Rate Cut Off) and pays €2,000 into a pension then she will get relief at 20% if it's put through payroll.  Ultimately if she is jointly assessed with her husband then he can use her unused standard rate cut off so will pay 20% tax on an extra €2,000.  Thereby getting relief at 40% for the contribution.

The OP mentions part time so likelihood is that his wife will not earn over €24,800 and therefore he won't get the benefit in this case.


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## bstop (18 Jan 2017)

If wife earns 20000 and makes AVC of  5000 (25%).
If husband earns 70000 .
Their joint taxable income would be reduced from 90000 to 85000. This would result in a tax saving of 40% of 5000. Standard rate cut of points do not influence the amount of tax saved.


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## Joe_90 (18 Jan 2017)

Bstop you are sticking to your guns on this one!

The total is indeed €85,000 but there is only €15,000 for her at the standard rate he is still taxed on €41,800 at 20% and €28,200 at 40% under both assessments.


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## bstop (18 Jan 2017)

Joe_90 said:


> Bstop you are sticking to your guns on this one!
> 
> The total is indeed €85,000 but there is only €15,000 for her at the standard rate he is still taxed on €41,800 at 20% and €28,200 at 40% under both assessments.


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## bstop (18 Jan 2017)

You are correct. Sorry about that.


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## Joe_90 (18 Jan 2017)

That's ok, hopefully the OP understands the point.


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## Ash21 (2 Feb 2017)

This kind of relates to me.  I am 41 now working part-time earning €26,500 approx.  Husband is the main earner of about €75k and is paying good pension contributions through his employer.  I am in the middle of disposing of my rental property, this was to be my pension but couldn't take anymore of the hassle (other story).  Once disposed of I will have a lump sum of about €80k to play with - want to put some away for our kids' education, into our own house and rainy day fund etc.

To replace the rental property I wanted to start my own small personal private pension but am now concerned I will only get relief of about 20% but that will get taken from the tax man at the other end as I understand it. My standard c/o is about €25K, can I use some of my husbands to get the 40%.  If not, what would be good option for someone like me.  Would like to put away about €400 a month or thereabouts depending on tax treatment.


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## GerardPROactive (2 Feb 2017)

Ash21 said:


> I will only get relief of about 20% but that will get taken from the tax man at the other end as I understand it.




This is not necessarily the case as (under current legislation) you will be entitled to at least 25% of the fund tax free. Also, currently if one spouse is aged 65 or more a married couple pays no income tax if total income is below €36,000.

Gerard
www.proactivefinance.ie


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