Pension AVC taxation when AVC is above tax relief threshold

Hey everyone,

I've got a pension plan at work where I contribute a percentage of my monthly earnings and the company covers a certain amount. From what I understand, there is a pension tax relief in which my contributions are done tax free. This amount of tax relief is a percentage of my annual salary and that percentage varies according to how old I am.

This year, I was given the opportunity to add part of my annual bonus as a one-off AVC to my pension, but after doing so I have reached my tax relief limit.

I've been looking everywhere, but I can't find what is the tax I'll be paying on every AVC from here on.

Can anyone help me understanding this?

Thanks!

Some figures might help.
But if you contribute more than your age related pension tax relief limit in a year then you simply don't get any tax relief on the excess.

You will get tax relief at your marginal rate up to your maximum age allowance each year. If you decide to pay a larger amount into your AVCs which is on excess of your age limit, you can carry the surplus AVC tax relief forward to future years.

I didn't realize you could overpay now and claim tax relief against a future year. This would be interesting in a downturn for buying more units when the price is lower.

ClubMan said:

Some figures might help.
But if you contribute more than your age related pension tax relief limit in a year then you simply don't get any tax relief on the excess.

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From what I gathered if, for example, I'm between 30 and 39 years old my tax relief is of 20%, and if I earn €100,000 a year, my relief would be €20,000. Any AVC above those €20,000 would be charged.

Question is, given this example, what taxes am I going to be charged?

S class said:

You will get tax relief at your marginal rate up to your maximum age allowance each year. If you decide to pay a larger amount into your AVCs which is on excess of your age limit, you can carry the surplus AVC tax relief forward to future years.

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What is my "marginal rate"? Income tax + PRSI + USC?

I'm not sure where to find that information.

gonesp said:

From what I gathered if, for example, I'm between 30 and 39 years old my tax relief is of 20%

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Yes.

gonesp said:

and if I earn €100,000 a year, my relief would be €20,000.

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This is not strictly correct - your relief is not €20K.
You get full tax relief on the €20K.
So, if you were otherwise paying 40% of €20K = €8K in income tax then if you contribute €20K to your pension you get that €8K relieved.
In effect, the €20K contribution has cost you €12K.

gonesp said:

Any AVC above those €20,000 would be charged.

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Yes.

gonesp said:

Question is, given this example, what taxes am I going to be charged?

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If you contribute, say, €25K then you will still pay 40% tax on the €5K over your age related limit.

Marginal tax is the rate you pay on your topmost income. Either 20% or 40%.
If your total earnings are for instance 5000 euro above your 20% tax band you have marginal earnings of 5000 euro taxed at 40%.

So in this example if you made AVCs of 7k . You would get relief at 40% on 5k and 20% on 2k.

After paying your AVCs you effectively then have a marginal tax rate of 20%.

S class said:

Marginal tax is the rate you pay on your topmost income. Either 20% or 40%.
If your total earnings are for instance 5000 euro above your 20% tax band you have marginal earnings of 5000 euro taxed at 40%.

So in this example if you made AVCs of 7k . You would get relief at 40% on 5k and 20% on 2k.

After paying your AVCs you effectively then have a marginal tax rate of 20%.

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Great! Makes sense! Thanks for the help!