How do revenue give tax credits for personal pension?

[askalot]

I was checking my tax credits for 2008 on ros.ie and it seems that revenue have given me a tax credit for my monthly pension premiums though not for the full amount (the premiums are within the revenue percentage limits for my age) but they have also increased my SRCOP and together with the tax credit these do give me the correct relief, as far as I can work out.

It would seem more straightward to just allow a tax credit for the full amount rather than splitting it between the SRCOP but is this the usual way they do it?

 

[ClubMan]

This confused me initially but eventually made sense to me. Could you post the pension related SRCOP and credit figures and I can probably explain? I just can't remember the details offhand and a worked example would be easier! Basically they do it this way to ensure that the relief is fair for both 20% and 41% tax rate payers. If they just increased the credit there would be some imbalance.

 

[askalot]

Thanks, here are the figures from ros.ie -

Retirement Annuity Relief: 2,440.00

Net Rate Band (SRCOP): 55,204.00


Married, single income.

 

[ClubMan]

Sorry - I'd need more info than that but if I recall correctly this is how it works...

Presumably your annual pension contribution is €2,440?

They extend your SRCOP by this amount over what it would otherwise be so that you only pay 20% tax on the pension contribution.

Then they also give you a standard rated tax credit for the same amount which means that the 20% tax that you ostensibly pay is cancelled out. The net result is 0% tax on your pension contribution.

I think the reason you don't just get a non standard rated tax credit of €2,440 is that you could end up getting 41% relief on income that you actually only paid 20% tax. The combined SRCOP and standard rated tax credit makes sure that you just get back tax actually paid.

Does that help?

Remember to claim PRSI/health contributionrelief separately (the link says PRSA but the same applies to any pension contributions made from net income):

Claiming PRSI relief on standalone PRSA contribution

 

[askalot]

Just to see if I have things straight!

The married, one income SRCOP for 2008 is 44,400 ?

My pension premium is 12,204 per year so the revised SRCOP should be 56,604 and not 55,204.

The tax credit should be 12,204 x .20 = 2440.80 which they have given me (I notice on ros.ie that the 80 cent has been given to my wife!).

So from this it seems that revenue are working from a base SRCOP of 43,000 (55,204 - 12,204) which is the married, one income SRCOP for 2007 ?

 

[ClubMan]

The married, one income SRCOP for 2008 is 44,400 ?

Yes - in 2007 it was €43,000 so for 2007 the adjusted SRCOP taking account of pension contributions should be €55,204 at outlined in your second post. Did you get your 2008 tax credits yet or are you looking at your 2007 one? If you did get your 2008 one then maybe they made a mistake and are still applying the 2007 credits? This happened last year and/or the year before and it took a few goes for people to get the right credits. You can always adjust them online if necessary.

My pension premium is 12,204 per year so the revised SRCOP should be 56,604 and not 55,204.

The tax credit should be 12,204 x .20 = 2440.80 which they have given me (I notice on ros.ie that the 80 cent has been given to my wife!).

Yes - sorry my explanation was a bit inaccurate above but the general gist still applies I think.

 

[askalot]

Thanks for your help, I finally understand it at last!

I haven't got my 2008 cert of tax credits yet but the figures are from ros.ie and are the 2008 listing of my tax credits. Maybe they just haven't updated it yet, I'll give revenue a call later to see it there has been a mistake.

You can always adjust them online if necessary.

I normally prefer to work online but for some reason the thoughts of 'messing' with my tax credits online fills me with terror!

Thanks again.

 

[ClubMan]

Thanks for your help, I finally understand it at last!

Great.

I haven't got my 2008 cert of tax credits yet but the figures are from ros.ie and are the 2008 listing of my tax credits. Maybe they just haven't updated it yet, I'll give revenue a call later to see it there has been a mistake.

Yeah - probably simply not updated yet in preparation for them sending out 2008 tax credits.

I normally prefer to work online but for some reason the thoughts of 'messing' with my tax credits online fills me with terror!

If there is anything wrong and you can change it online then you should. It's the most efficient way to do it and Revenue are happy for people to do this once they are entering correct info.