Revenue and AVCs

Hi there,
I've decided that I'm going to set up an AVC and I've received conflicting information and I'm wondering if some people on this great website could answer my query. Basically, I'm a secondary school teacher, paying the top rate of tax and I had assumed that all of my contributions towards an AVC would receive the 40% tax benefit. When I spoke to an independent pension specialist they led me to believe this, but then from speaking to Revenue they seem to take a different viewpoint. They say that as I'm not paying tax at the higher rate (40%) on all my income, some parts of the contributions I make towards an AVC would only receive the 20% tax benefit. Just wondering if anyone could bring some clarity to this?

Derek1001 said:

They say that as I'm not paying tax at the higher rate (40%) on all my income, some parts of the contributions I make towards an AVC would only receive the 20% tax benefit.

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That's perfectly feasible. You can only get tax relief on pension contributions to the extent that you actually pay tax on the money contributed to the pension. If your contributions exceed the amount of your gross on which you pay 40% then any further tax relief will be at 20%.

What is your gross annual salary and what, if any, pension contributions are you already making?

Thank you for that. My gross annual salary is 74k, out of which I pay 6.5% to the teachers' pension scheme.

I just realized this recently. AVCs are always sold and explained like: "Relief from Income Tax is allowed on AVCs at your marginal rate." but no one ever clarifies what @ClubMan has stated above. Even revenue.ie don't make that clear.

If you are only just in the 40% tax bracket then you won't get much tax relief making AVCs. Most of your tax relief would be at 20%. It favors higher earners more, subject to the €115k limit.

For the moment I'm going to assume that you are single, no children, not taxed as a public servant, and have just the basic tax credits.

In that case your gross after your existing 6.5% pension contribution would be c. €70K and subject to 20% tax of c. €8.8K and 40% tax of c. €10.4K.


So if your AVC contributions exceed €10.4K then you'll get 40% relief on that amount and 20% relief on the excess.

Edit: the above is incorrect - see here for correction.

These are very rough simplified figures and you should check your payslips and 2024 balancing statement for your specific actual figures.

E&OE!

CharlieMac said:

If you are only just in the 40% tax bracket then you won't get much tax relief making AVCs. Most of your tax relief would be at 20%.

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It's definitely been discussed here on Askaboutmoney previously.

Thank you so much for doing the number crunching there for me! That is very kind of you. I like your the E&OE touch at the end

ClubMan said:

In that case your gross after your existing 6.5% pension contribution would be c. €70K and subject to 20% tax of c. €8.8K and 40% tax of c. €10.4K.

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ClubMan said:

So if your AVC contributions exceed €10.4K then you'll get 40% relief on that amount and 20% relief on the excess.

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Isn't €10.4k the 40%, couldn't Derek contribute €26k to an AVC and still get 40% relief (depending on revenue age limits of course)?

poorrelative said:

Isn't €10.4k the 40%, couldn't Derek contribute €26k to an AVC and still get 40% relief

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Duh! My mistake. And you are correct. Lucky I added the E&OE! Thanks for correcting my mistake. I'll note it in my original post to avoid confusion.