Advice on pension lump sum payments

M

moneymakeover

Registered User
Messages
915
Hi

Say I have rental income (tax liability 5k annually)

And I have 100k savings.

Say 10 years to retirement.

Does it make sense to make annual lump sum payment of 10k every October?

In that way it will reduce tax liability and max the pension?

Best regards
 
Firstly, rental income is not deemed as “pensionable income”. Rental income is deemed as “unearned income”.
So it all depends on what income you earn from employment or self-employment. Assuming you have some “earned income” then you can invest a % of that into an approved pension structure.
 
What is the breakoff point of gross pay for a single person where one can maximise the gain for full relief ? Is it around the 44k mark ? Assuming about 34k being the srcop ? Also is usc excluded so max gain is 44% assuming prsi isn't ?
 
Assuming it's not a bad idea

Can it be improved on?

Can I add entire amount now?

And draw on the tax relief over the next 10 years? Similar to a question on another thread in this forum
 
You need to provide more information.
Are you employed or self employed?
What is the income?
How old are you?
Have you any existing pension assets?
 
Say the person is Paye with small existing company pension.

55 years old and planning to retire 65
(Before the state pension available at 68)

The advantage of only using 10% per year towards pension lump sum is that it keeps cash available
 
So you can invest a total personal contribution (in addition to any Employer contribution) of up to 35% of Salary (40% after age 60). The tax advantage is that:
- you get tax relief on any contributions (at 20% or 40%)
- you get gross build up (no tax on any investment growth)
- you can take some of the fund (max 25%) as a tax free lump sum (up to €200,000) at retirement

Any income generated by the remaining fund (75%) at retirement will be liable to tax, but obviously depending on your overall income in retirement that can vary from 0% up to 40%.
 
Guys

Insofar as rental income is concerned how does it work?

If I have 10k rental profit incurring tax liability of 5k

I put 10k into pension

What actually happens?

Do I end up with 5k in my pension and no liability?

In other words I have just paid the tax bill
 
As I understand it, first you need sufficient income from employment\self employment. Rental income doesn't count.

Do a pension contribution to generate a tax credit. So the credit can partially or fully reduce the tax due on the income (you need an accountant for the details).

You would put the 10k in the pension and have 10k in your pension after.
 
You see there is both rental income and Paye income

The tax liability is being funded by the pension contribution

But there might be some financial advantage
 
This is simple.
Any contribution you invest out of your earned income is deductible as an expense. So if your earned income (ignore rental income) was say €50,000 and you invested say €10,000, then in effect your gross taxable income is now €40,000. So you pay PAYE on €40,000 and then offset any tax credits. So the tax savings is against your earned income.
Your rental income is completely separate. You cannot offset any pension contributions against this income.
 
Maybe the question should be asked in a tax forum

The case involves a tax payer with both paye and rental income

And the original question asked was:

Is there any advantage to taxpayer with rental income liability in making a lump sum pension contribution
 
The question has been answered already above (more than once).

You can only get tax relief on your earned income for pension contributions. Rental income is unearned, so doesn't count.

Effectively what your proposing is making an AVC against your previous years PAYE income, and using the resulting credit to offset your income tax on the unearned rental income.

All you're really doing is confusing yourself.
 
Expanding on Conan's example above, let's say you have €50,000 earned income and €50,000 rental income (after allowable expenses). Without a pension contribution, you'll pay Income Tax and levies on the €100,000. If you make a pension contribution you will get full tax relief on the pension contribution. As has been said several times above, the pension contribution can only be made against the earned income. Given that you'll get tax relief in full on the pension contribution within allowable limits, in this example it doesn't matter too much whether the tax relief is against your earned or rental income. The end result is that you pay less tax if you make a pension contribution.
 
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