Aged 54 100K for Investment - Pension

D

DEWSBURY

Registered User
Messages
3
Hi,
I am 54 and have 100K to spare and will NOT need to touch it for a decade or more.
I intend putting it into my pension.

Two tax related queries:

Q1. My income is, say 50k per annum. Therefore my pension contribution of 100K will give me tax relief for several years.
QUESTION: Is there a limit on the number of years I can claim tax relief in advance. I.e. can I make a contribution of 100K in 2015 and still be claiming tax relief in 2020 or later?

Q2: This 100K has been invested in tracker funds for 8 years now and is in profit. It was originally 60K (invested in USA tracker fund - based in Ireland). I am now due to pay tax on the gain of 40k.
QUESTION:Would I have been better of to have put the 100K into my pension 8 years ago?
The point I am making it that capital gains tax is due on my profit ..... what tax would have been payable if I had simply put the money into my pension ?
 
Hi Dewsbury

Q1. There is age-related annual limit on the income tax relief available on contributions to your pension fund. You can't claim income tax relief in advance - it's an annual relief. However, there is no prohibition on contributing over and above the maximum amount to your pension fund that can be relieved from income tax.

Q2. In my opinion, you are always better off maximising your income tax relieved pension contributions, subject to the standard fund threshold of €2m.

There is no tax on gains or income on assets within your pension fund but any amount ultimately drawn down is taxable.

Hope that helps.
 
Thanks Sarenco.

Allow me clarify my first question.
I am aware of the percentage annual limits based on age.
However, I am fairly certain that the following example is valid;

Year 2015: I can maximise tax relief by contributing 10k to pension (however, because I have some spare cash , I actually contribute 15k)
Year 2016: I have no spare cash this year BUT my overpayment of 5k in 2015 will mean I get tax relief on this 5k.

I am wondering how many years this would be permissable for, if I paid the 100K.
 
Hi Dewsbury

There is no limit on the amount of years the relief can be carried forward. The Revenue merely states "the unrelieved amount may be carried forward to the next or succeeding years and treated as a qualifying premium paid in subsequent years."

Would you have been better off putting it into a pension? Probably, I haven't done the calculations but what you need to consider:
  1. Tax relief on contributions
  2. Same gross roll up as the tracker bonds you currently have
  3. 25% tax free lump sum
  4. Depending on the size of your overall pension pot, you can manage the withdrawals so you pay tax at the lower rate
  5. But then, in an investment, you pay exit tax at 41% on the growth, not the capital sum. With a pension, you pay income tax on the full fund.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
It's also worth pointing out that you don't pay PRSI once you're 66, and that your pension fund is taxed favourably on way out. The lump sum is tax free for most people, and for most people their pension/drawdown will be subject to a mixture of standard and higher rate income tax.
 
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