Tax relief on AVC contributions - possible misunderstanding

My understanding is that you can claim tax relief on pension contributions subject to an age-related earnings percentage limit and a total earnings limit. Provided that those limits are not exceeded, you get tax relief at your marginal rate.

In my case, I am 37 and earn €135k pa. I have a DB pension scheme and I recently set up an AVC PRSA to make an additional contribution of €500 per month to my pension. Provided that my pension contributions are 20% or less of €115,000 pa, my understanding is that I should be receiving tax relief of 40% of my pension contribution. Is this correct?

The reason I am asking is that when I applied on My Revenue for the relevant tax credit, I only received a tax credit of 20% of my pension contribution. In other words, when I inputted €500 per month as my AVC PRSA contribution, I had understood that I would be receiving a tax credit of €200 per month, but I am only receiving €100 per month. I queried this on My Enquiries and received the below response:

“Maximum relief is a percentage based on age and relevant earnings. As you are 37 the percentage limit is 20 per cent”.

Before I go back to Revenue and make a fool of myself, is my understanding correct, or have I misunderstood how tax relief on pension contributions work? Thanks.

INYWIFNW said:

In my case, I am 37 and earn €135k pa. I have a DB pension scheme and I recently set up an AVC PRSA to make an additional contribution of €500 per month to my pension. Provided that my pension contributions are 20% or less of €115,000 pa, my understanding is that I should be receiving tax relief of 40% of my pension contribution. Is this correct?

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Correct.

INYWIFNW said:

The reason I am asking is that when I applied on My Revenue for the relevant tax credit, I only received a tax credit of 20% of my pension contribution.

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Are you sure that they didn't also increase your standard rate cutoff point by the amount of the pension contribution which, in combination with the tax credit, would result in 42% tax relief on your contribution?

I seem to recall this being the treatment in the past and it confusing me too. I think it's done this way to avoid anybody getting 42% relief when they should only be getting 20% on some or all of the pension contribution.

INYWIFNW said:

“Maximum relief is a percentage based on age and relevant earnings. As you are 37 the percentage limit is 20 per cent”.

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Sounds like they might be answering a question that wasn't asked or they misunderstood your question.

ClubMan said:

Are you sure that they didn't also increase your standard rate cutoff point by the amount of the pension contribution?

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This is the most likely reason - check your standard rate cutoff

Will do - thanks very much, both.

Does anyone know if my wife can get 40% relief even though she is earning 41k, on the basis that I earn 122k and we are jointly assessed? Or is this done on an individual level even when couples are jointly assessed?

Fibbernacci said:

Does anyone know if my wife can get 40% relief even though she is earning 41k, on the basis that I earn 122k and we are jointly assessed? Or is this done on an individual level even when couples are jointly assessed?

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Any use?

Fibbernacci said:

Does anyone know if my wife can get 40% relief even though she is earning 41k, on the basis that I earn 122k and we are jointly assessed? Or is this done on an individual level even when couples are jointly assessed?

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Your wife's 20% tax band can be reduced down to 33k. This is done by transfering some of her 20% tax band to you. This effectively reduces your 40% tax liability and increases hers.

She can therefore get 40% tax relief on her pension contributions to a maximum of 8k. This figure is for 2024. Budget changes each year will change the 33k to a different amount.

So the answer to your question is yes.

You don't have to do any actual adjustments to either of your tax bands.
Just submit a statement of liabilities at the start of the new year and the correct pension relief will be automatically calculated. You will then get a tax refund for your wife's pension contributions.

INYWIFNW said:

Will do - thanks very much, both.

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By way of update (and in case anyone else finds it useful), Revenue has confirmed that my standard rate cutoff has also been increased to reflect the 40% tax credit. Thanks for the suggestions above.