AVC contribution to maximise tax relief

[Glazer FC]

I finally got around to doing my tax return for 2006 (I'm so proud of me!)

The end result was - Income 64,000 taxed at 20% (tax = 12,800), 12,684 at 42% (tax = 5,327.28), Credits & Reliefs approx 6,795 - Net tax paid 11,332.

Mu understanding is that I can make AVC contributions before Oct 31st for 2006 - I was thinking of paying 12,684 into my pension (this is under my 20% pansion limit for the year) and thereby be eligible for a refund of the tax paid at 42% (i.e. the 5,327.28)?

The credits & reliefs of 6,795 would then be offset against the tax due at 20%

Does this make sense/good use of tax relief?

Thanks.

 

[ClubMan]

The end result was - Income 64,000 taxed at 20% (tax = 12,800), 12,684 at 42% (tax = 5,327.28), Credits & Reliefs approx 6,795 - Net tax paid 11,332.

Are you sure about that? [broken link removed] (which admittedly only deals with a set of commonly applicable credits/allowances so may not cover some that you are entitled to) comes up with deductions for tax of €16,720 and PRSI/health levy of €2,951.

Mu understanding is that I can make AVC contributions before Oct 31st for 2006 - I was thinking of paying 12,684 into my pension (this is under my 20% pansion limit for the year) and thereby be eligible for a refund of the tax paid at 42% (i.e. the 5,327.28)?

If 20% is your age related pension relief limit then you can contribute that amount and get full tax and PRSI relief (the latter must be claimed separately after tax relief):

Claiming PRSI relief on standalone PRSA contribution
October 31 - what does it mean for PAYE worker?

Does this make sense/good use of tax relief?

Yes - if pension savings is already a priority for you.

 

[Glazer FC]

Hi Clubman,

Thanks for the quick response. That tax calculator gave me credits of 6,240 - which is roughly right. I would love to have deductions of 16k... can you tell me more?!!!

Thanks and regards

 

[ClubMan]

I think you misunderstood - according to the calculator's results you should be paying almost €16K tax and €3K PRSI/health levy whereas you claim to have assessed your liability at €11K tax only. The calculator could be ignoring some credits/allowances that you are entitled to but if I was you I would double check the calculations and maybe get professional advice before filing a (possibly erroneous) return.

Update: you say...

The end result was - Income 64,000 taxed at 20% (tax = 12,800), 12,684 at 42% (tax = 5,327.28), Credits & Reliefs approx 6,795 - Net tax paid 11,332.

Do you mean that your gross income was €64K or €64,000 + €12,684 = €76,684? If the latter then Karl's calculator suggests that you could be liable for €22K tax and €3,200 PRSI/health levy!

 

[Glazer FC]

Thanks for the clarification. I got home and used our 2006 P60s & payslips to complete Karl Grabe's tax calculator (it's really good!) and got to within €400! Cheers!

 

[ClubMan]

You need to be exactly correct when doing a tax return!