Overpaid on AVCs - How to roll to next year?

alanalanalan

alanalanalan

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Hello! Looking for advice.

I made an error this year when contributing AVCs to an occupational pension scheme and as a result, contributed more than allowed for tax relief based on my age (34, making the threshold 20% of the max allowed €115,000, or €23,000) - over to the tune of nearly €20k (whoops).

Revenue have stated that if it was a private AVC, I could include a note in my annual returns asking for X amount to roll over into 2024, and then reduce/eliminate AVCs in 2024 so that I remain within threshold for tax relief overall. However, as it is an occupational pension scheme, the PAYE helpline could not advise on management due to the fact that tax relief is granted at source. My employer payroll department appears not to have any knowledge on how to manage this.

Does anyone have advice on what to do - presumably if I don't rectify, tax at my marginal rate would be due on the "overpayment" portion of the AVC above €23,000? I would rather avoid that - and cannot do anything about AVCs already contributed, I am quite a way off retirement yet.

Thanks!
 
At the start of 2024 you can login to your myaccount. You can then do a statement of liabilities. This will calculate your tax based on your maximum AVC allowance. It will show an underpayment of tax. Usually this underpayment is collected by revenue over the next 5 years by decreasing your tax credits for each year.
 
You can carry forward the overpayment from 2023 and claim tax relief on it now, in 2024.

From MyAccount you can "Manage your Tax 2024" and add a tax credit for AVCs.

You will enter your expected annual income for 2024. Then in "Amount carried forward from a prior year from which relief has not been obtained" you will enter the excess from last year on which you didn't get relief (€20k you said).

You will not receive a refund to your bank account, but your tax credits and threshold will increase. So you will recover 1/12th of the tax relief in each of your monthly payslips over the course of 2024 (net pay increased by €666 per month).

You should then review your regular employee and AVC contributions this year to ensure you're not breaching the limit again. Given that you will have already claimed 20k of the 23k available in 2024, you can only claim another 3k this year. You may need to defer more until 2025.
 
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Hi all. An update on this topic. Revenue are claiming now that, as the AVCs are taxed at source via PAYE payroll, their guidance is that tax relief cannot be carried forward into the following year, and that the tax underpayment from 2023 (due to being granted too much tax relief by my employer) must be paid for me to obtain my 2023 EDS.

They claim that if I had made AVCs privately outside of payroll, their guidance would permit carry forward of relief, so a reduction in my 2024 AVCs would have balanced the overpayment above the 20% of €115,000 threshold in 2023. However, this does not apply to PAYE contributions. My preliminary tax statement for 2023 shows a tax underpayment.

This seems inherently unfair - does anyone have a similar experience, and how was it resolved? The guy I spoke to at Revenue went to get guidance and spoke with a supervisor who confirmed this interpretation.
 
EDS is just an Employment Detailed Summary. It gives the tax year totals of your Employers Payroll Submissions.

It sounds like the person spoke to in Revenue is 'confused'.

What you want is the next stage. It is what Revenue call a SOL, Statement of Liability. This will show how Revenue calculated your Tax Liability and if they just accepted your overpayment of AVCs or capped them at the age limit. Without the SOL you don't know what way their system has handled it. The pension contribution age limits are not set in stone, Revenue give dispensations to people whose earnings are higher when they are younger.
 
The pension contribution age limits are not set in stone, Revenue give dispensations to people whose earnings are higher when they are younger.
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Really? I've never heard of this before (other than for sportspeople). Are there any references anywhere?

I did some calculations recently and realised I've been over paying for the last few years. I just had assumed I would carry forward the tax relief, as in at some point I'd stop paying in and catch up on my tax relief.
 
It would be quite the advantage to be able to make next year's tax free contributions now. Another year of growth, potential to buy more of the dip etc. Does it really work?
 
Fibbernacci said:
Does it really work?
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Retirement annuities

You can claim tax relief for contributions to a Retirement Annuity Contract
www.revenue.ie www.revenue.ie
In general, Revenue give tax relief on your premiums in the tax year in which they are paid. If full relief cannot be granted in a tax year, you can generally carry the unrelieved premiums forward to the following year. In certain circumstances, relief for premiums paid in a tax year may be granted in the previous year.
Click to expand...
 
Fibbernacci said:
It would be quite the advantage to be able to make next year's tax free contributions now.
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An advantage as long as your cashflow allows for it. If you have a lump sum then you can front-load it but most people are funding their pensions from their salary.
 
As far as I can see, that's only present on the page for RACs, not for occupational pensions or PRSAs?

I wonder how far one can go with it; is _multiple_ years of carry forward allowed? That would seem like a huge loophole.
 
The exact wording when adding an AVC tax credit is "Amount carried forward from a prior year from which relief has not been obtained" It doesn't say only the one previous year.

Remember as well you're not getting the relief on that front payment until the future either. If you make a €10,000 AVC today in respect of 2024 you will get €4,000 back to your bank account.

If you make it for 2025 you will get 1/12th = €333 back per month in your 2025 payslips. If you make it for 2026 and beyond you are waiting until then.

So your immediate cashflow is reduced more for future payments than back payments.
 
Hmm5673 said:
As far as I can see, that's only present on the page for RACs, not for occupational pensions or PRSAs?
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The link that I posted deals with RACs but I think that the same approach applies to other pension types.
If necessary check the Revenue tax manuals and briefings for more info.
 
Hmm5673 said:
As far as I can see, that's only present on the page for RACs, not for occupational pensions or PRSAs?
Click to expand...
You can do it for PRSAs. (assuming you are not in pensionable employment)
But if in the future you changed to pensionable employment you would no longer be able to claim tax relief from the excess in the PRSA.

You could also do it for pensionable earnings by making excess AVCs or payments to an AVC PRSA.
You would run into difficulties if you ceased the pensionable employment linked to the AVCs and took up new employment.
You then could not claim any further tax relief on the excess AVCs.

The excess AVCs would not be eligible for tax relief from your new employment.

Hmm5673 said:
I wonder how far one can go with it; is _multiple_ years of carry forward allowed? That would seem like a huge loophole
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You could future claim up to your retirement date.
 
If there was a 2008 style stock market crash and you had cash to make 5 years of over payments you'd do pretty well.
 
You don't know when the next 2008 style stock market crash will be. How long are you happy to sit on that pile of cash watching stock markets go up while you wait for it?
 
I don't have such pile of cash but some folks could be sitting on some gold or bonds as a hedge against just such an event.
 
One thing about front loading AVCs and taking the tax relief in subsequent years is to avail of that opportunity you will incur a lump sum contribution fee from your provider. In the case of Cornmarket/Irish Life they charge a 4% fee on the lump sum to an employer linked AVC fund... e.g: 4k on a 100k lump sum.

Maybe there are other ways to make AVCs or PRSA AVCs that can avoid this lump sum fee. Would be nice to know about that.
 
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