Is there any point contributing to a PRSA without tax relief?

[ATC110]

The answer seems obvious to me but is there any point in making contributions to a PRSA/pension in a given tax year when you have no tax liability anyway?

 

[WizardDr]

It is taxed on the way out so you should note that.
But there are carry back and carry forward procedures
w

 

[ATC110]

I wouldn't have had a liability for a few years and always completed my own Form 11. It's only now I'm taking the time to consider that there's no income tax liability on an income <€16500..

 

[Marc]

Personal Savings Accounts

This guide sets out how a Personal Retirement Savings account (PRSA) combined with an Approved Retirement Fund (ARF) can be used by any Irish Investor between the ages of 18 and 75 to invest personal savings in a tax efficient way

view.joomag.com

 

[ATC110]

Personal Savings Accounts

This guide sets out how a Personal Retirement Savings account (PRSA) combined with an Approved Retirement Fund (ARF) can be used by any Irish Investor between the ages of 18 and 75 to invest personal savings in a tax efficient way

view.joomag.com

My post is about having zero tax liability so cannot see any advantage in this product

 

[LDFerguson]

The answer seems obvious to me but is there any point in making contributions to a PRSA/pension in a given tax year when you have no tax liability anyway?

Do you think you might have a liability in the future? If so, tax relief can be carried forward into future years.

Another consideration is that, depending on your circumstances, you might or might not be tax exempt in retirement. Getting no tax relief on the way in but being taxed on the way out would be a difficult one to justify.

 

[Marc]

My post is about having zero tax liability so cannot see any advantage in this product

the advantage is that even if one pays no income tax, exit tax is at a flat rate of 41% capital gains tax is at a rate of 33% with a puny exemption of just €1270

so a great strategy is to purchase funds within a PRSA which would otherwise be taxed at punitive rates

 

[Sarenco]

so a great strategy is to purchase funds within a PRSA which would otherwise be taxed at punitive rates

I think it's a terrible strategy in most circumstances.

CGT/exit tax is only payable on gains/returns, whereas your strategy unnecessarily exposes an investor's savings/capital to income tax, USC and PRSI.

Your strategy might make sense in circumstances where an investor has (a) ample after-tax savings/capital, (b) a modest income, and (c) limited tax-deferred pension savings. But even in those circumstances, the strategy comes with serious risks.

 

[MaxGordon]

I presume Mark is just being fahseeshus?

 

[Gordon Gekko]

I’d like to see the workings.

Say I’ve €250k.

I struggle to see how I’d be better off putting it into a PRSA rather than investing directly in a portfolio of shares.

Yes, with the latter I might leak 52% of any annual dividend income, but dividend income tends to be minimal on the basis that lots of the shares that one wants to own don’t pay out.

 

[AAAContributor]

I struggle to see the financial rationale here too, short of:

The person having to be saved from themselves by being forced to lock up their money for the long-term where they can't get their hands on it, lest they blow it all at the track!

or

Stiff wealth taxes being applied to non-pension assets over the period and/or resumption of higher inflation with no reintroduction of indexation factors to account for inflationary gains.

or

CGT being revised substantially upwards.

And even then!

But would be interested to understand the logic behind this financial advice to see where the financial alchemy arises for the client (and not the adviser)!

 

[Gordon Gekko]

Why wouldn’t I use my tax-paid €100,000 to buy something like F&C Investment Trust?

It’s subject to CGT and its dividend yield is around 1.7%. But CGT only arises if I sell and disappears on my death. I can keep the assets past age 75 (unlike a PRSA).

So I leak around 0.85% in income tax/USC/PRSI each year.

Versus taking my tax-paid €100,000 and putting it into a PRSA? Where it’s locked-up until I’m 50? And where I pay tax on any withdrawal of my original tax-paid money and any growth (i.e. not just the growth)? And I’m paying a fee for the PRSA wrapper?

I’m struggling to see the positives.

 

[ATC110]

the advantage is that even if one pays no income tax, exit tax is at a flat rate of 41% capital gains tax is at a rate of 33% with a puny exemption of just €1270

so a great strategy is to purchase funds within a PRSA which would otherwise be taxed at punitive rates

Either this is an attempt or sarcasm or it just doesn't make any sense