Pension Neophyte advice please!

[Kev1964]

Sorry, wrong link.
But isn't the concept of exceeding the age related tax relief in one year but claiming tax relief on the excess in a subsequent year the same here?

I've never heard of it in an Irish context but I'm not a tax expert. If it is the same in ROI it opens interesting possibilities that I hadn't previously considered.

 

[ClubMan]

I've never heard of it in an Irish context but I'm not a tax expert. If it is the same in ROI it opens interesting possibilities that I hadn't previously considered.

Tax Reliefs

Tax Reliefs Dáil Éireann Debate, Thursday - 8 September 2022

www.oireachtas.ie

Employee contributions in excess of the maximum tax-relieved amount can be treated as contributions for the previous year (if the individual did not fully utilise his or her tax relieved amount in that year) if the contribution is made before the return filing date for that year. For example, if an employee’s maximum tax relieved contribution in 2022 is €7,500, but he or she makes contributions of €10,000, the excess over €7,500 can be treated as a contribution for 2021 if it is made before the filing date for the 2021 tax return, which is 31 October 2022 or later if the return is filed through Revenue’s Online Service (ROS). Any unrelieved balance can be carried forward to claim relief in a future year.

 

[Kev1964]

Tax Reliefs

Tax Reliefs Dáil Éireann Debate, Thursday - 8 September 2022

www.oireachtas.ie

Are we comparing apples with apples? The Irish concession looks at not reaching your maximum contribution in a previous tax year. You can catch up in the next tax year.

I think the UK scenario that you described is exceeding your maximum contribution and claiming tax relief on the excess in a subsequent tax year.

Apologies if I've misunderstood you and also to the OP for going off on a tangent.

 

[ClubMan]

Are we comparing apples with apples? The Irish concession looks at not reaching your maximum contribution in a previous tax year. You can catch up in the next tax year.

I think the UK scenario that you described is exceeding your maximum contribution and claiming tax relief on the excess in a subsequent tax year.

Apologies if I've misunderstood you and also to the OP for going off on a tangent.

Did you read the bit that I emphasised in bold italics?

Any unrelieved balance can be carried forward to claim relief in a future year

 

[_OkGo_]

This summarises the approach...

Pensions - tax reliefs Ireland : Maneely Mc Cann

www.maneelymccann.ie

It would be better to delete this link because it is misleading.

But isn't the concept of exceeding the age related tax relief in one year but claiming tax relief on the excess in a subsequent year the same here?

No, they are literally the opposite of each other. Your link describes carrying forward unused allowance i.e. under contributing this year can allow over contribution next or subsequent years.

That is the opposite of the Irish system whereby you must over contribute this year and then you can use the relief in subsequent years

 

[Kev1964]

Did you read the bit that I emphasised in bold italics?

Yes.

 

[Itchy]

Do I have to be earning more for this? As in how do I go about claiming extra relief is it offset against something else?

Its not extra relief at all. You are bringing forward next years contributions but you will only be eligible to claim the tax relief in the following year. If you can contribute 10k in year 1 and year 2, claiming the tax relief in each year. Instead contribute 20k in year 1, and claim the tax relief in years 1 and 2 as normal. You are carrying forward the proportion of your contribution that has not been grated tax relief, to the next tax year.

The advantages of this are that your pension investment benefits from the tax sheltering for a longer period of time than would otherwise be the case. What you are trying to capitalise on is time in the market, rather than drip feeding your investment. The risks are that your contributions are being made in the expectation that you will be able to claim the tax relief in the future i.e. your circumstances change such that you cannot claim 40% tax relief, the opportunity costs of an alternative investment, other risks such as needing the cash for other uses, change in the tax environment etc.

Also, I don’t think it makes sense to make contributions to your pensions without the benefit of tax relief in your circumstances.

It can make sense for an individual with a variable, “lumpy” income but you’re not in that position.

Just to be clear, I am advocating for claiming the tax relief in future years, rather than not claiming it at all.

I would have thought that these circumstances are ideal for pre-funding, given the 10 year timeframe to retirement, substantial (cash) assets, no other liabilities or discretionary requirements for the money, a specific investment objective of maximising wealth for retirement - and the pension is the only game in town from an investment perspective given the overall circumstances.

Regarding the risk of claiming future tax relief, its 'steady as she goes' for their financial circumstances over the next while. The intention is to maximise the tax relief anyway. It'll have no effect on their lifestyle in any case. Make the contributions from their cash savings. They stop making AVCs (monthly cash flow increases) and in an emergency they have recourse to the 50k held for their child (or in extremis would be able to take a loan which could be paid off by the 25% lump sum down the road).

 

[ClubMan]

It would be better to delete this link because it is misleading.

I can't delete my posts and you've just quoted the link which compounds the issue.

 

[Mommabearof3]

Its not extra relief at all. You are bringing forward next years contributions but you will only be eligible to claim the tax relief in the following year. If you can contribute 10k in year 1 and year 2, claiming the tax relief in each year. Instead contribute 20k in year 1, and claim the tax relief in years 1 and 2 as normal. You are carrying forward the proportion of your contribution that has not been grated tax relief, to the next tax year.

The advantages of this are that your pension investment benefits from the tax sheltering for a longer period of time than would otherwise be the case. What you are trying to capitalise on is time in the market, rather than drip feeding your investment. The risks are that your contributions are being made in the expectation that you will be able to claim the tax relief in the future i.e. your circumstances change such that you cannot claim 40% tax relief, the opportunity costs of an alternative investment, other risks such as needing the cash for other uses, change in the tax environment etc.



Just to be clear, I am advocating for claiming the tax relief in future years, rather than not claiming it at all.

I would have thought that these circumstances are ideal for pre-funding, given the 10 year timeframe to retirement, substantial (cash) assets, no other liabilities or discretionary requirements for the money, a specific investment objective of maximising wealth for retirement - and the pension is the only game in town from an investment perspective given the overall circumstances.

Regarding the risk of claiming future tax relief, its 'steady as she goes' for their financial circumstances over the next while. The intention is to maximise the tax relief anyway. It'll have no effect on their lifestyle in any case. Make the contributions from their cash savings. They stop making AVCs (monthly cash flow increases) and in an emergency they have recourse to the 50k held for their child (or in extremis would be able to take a loan which could be paid off by the 25% lump sum down the road).

So much here I was unaware of thank you so much for taking the time to explain this concept to me.

 

[Mommabearof3]

It would be better to delete this link because it is misleading.



No, they are literally the opposite of each other. Your link describes carrying forward unused allowance i.e. under contributing this year can allow over contribution next or subsequent years.

That is the opposite of the Irish system whereby you must over contribute this year and then you can use the relief in subsequent years

Well it appears this may be applicable to me as last year I earned 150K year ending 2022 and I definitely over contributed the previous year ending 2021 does that mean I might be able to claw back extra relief that I did not get? I do not claim AVC contribution relief until year end as a way of building up savings we usually a good rebate every January and then save this. Am I correct in my interpretation or is it this year that the unused relief will apply? Again so much good information has been gained here.

 

[Itchy]

Well it appears this may be applicable to me as last year I earned 150K year ending 2022 and I definitely over contributed the previous year ending 2021 does that mean I might be able to claw back extra relief that I did not get? I do not claim AVC contribution relief until year end as a way of building up savings we usually a good rebate every January and then save this. Am I correct in my interpretation or is it this year that the unused relief will apply? Again so much good information has been gained here.

Your maximum (eligible) contribution for last year is 115k x 30% = 34.5k (This includes your personal contributions to the DC scheme and your AVCs). Anything above that, can be carried forward to this year which is 73k x 30% = 21.9k.

Just to note, I'm not clear if your spose is maximizing his tax relief? It is less efficient if you are over-contributing and he still has scope to make additional contributions. For example, this year you (both) have scope to contribute (73k + 52k) x 30% = 37.5k (21.9k for you, 12.6k for him).