Using AVC to reduce Rental Tax Liability - Is it Possible?

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The Horseman said:
Rental income is not earned income. You pay 10k into your pension. You invest 10k in cash in your pension.

Revenue give you back 4k. So you have invested a net of 6k actual cash. Your pension has increased in value by 10k and it has cost you 6k.
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Unless you mean you send in 10k
10k goes to your pension
And revenue does not refund you 4k?
But keeps it for the rental income liability?
 
moneymakeover said:
In my example above I was taking 10k of gross paye income

You're taking 10k of after tax savings.

That's equivalent to 16.67k gross income

In your example, you say revenue give you back 4k. I know that's what happens normal lump sum pension contribution (no rental income).

But what happens when there is rental income/tax liability?
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Rental income is not earned income so you don't get tax relief on rental income. I am an accountant and have been a landlord for the last 12 yrs so I know what I am talking about.

If the above does not make sense to you I will respond tomorrow when I am at my desk.
 
Nobody is disputing

"Rental income is not earned income so you don't get tax relief on rental income."

we know the relief is on paye income.


here's an example


John has a lump sum savings 10k he will pay to his pension. John has no rental income.

He sends a cheque to pension company in October as additional avc and they add to his pension.
they tell revenue who duly refund John 4k


Tom has 10k rental profit. He owes revenue 4k tax.

He sends a cheque to his pension company for 10k

They credit his pension 10k and tell revenue.

You're saying revenue refund Tom 4k same as John? Both get same benefit even though only Tom has rental income?


(Both cases above they both have 80k paye income)
 
moneymakeover said:
Nobody is disputing

"Rental income is not earned income so you don't get tax relief on rental income."

we know the relief is on paye income.


here's an example


John has a lump sum savings 10k he will pay to his pension. John has no rental income.

He sends a cheque to pension company in October as additional avc and they add to his pension.
they tell revenue who duly refund John 4k


Tom has 10k rental profit. He owes revenue 4k tax.

He sends a cheque to his pension company for 10k

They credit his pension 10k and tell revenue.

You're saying revenue refund Tom 4k same as John? Both get same benefit even though only Tom has rental income?


(Both cases above they both have 80k paye income)
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John gets his 4k back but Toms 4k cancels out his tax liability for his rental income.
 
The Horseman said:
John gets his 4k back but Toms 4k cancels out his tax liability for his rental income.
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That's what I said:

"Unless you mean you send in 10k
10k goes to your pension
And revenue does not refund you 4k?
But keeps it for the rental income liability?"


That is my point
There is no silver bullet
The liability has to be paid
Revenue keeps the 4k

What some people were saying was that by making the pension payment was like making the liability magically disappear.


And my figures in scenario 1,1b,2 are correct.
They are using gross income to fund the pension contribution. I can see now people found that confusing.

So in summary @Thirsty the cost is in not getting any refund from revenue commissioners.
 
Conan said:
In the second Scenario you invest €10k and get a tax rebate of €4K but you only have €10k in the Fund as compared to Scenario 1.
I still think you are comparing apples and oranges.
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What we have agreed is that if we take 10k cash
And contribute that into pension
If there is rental income the net cost is 10k (there is no rebate)

If there is no rental income the net cost is 6k
 
So let me try again

John, no rental income sends cheque for 16.67k to his pension
Receives rebate 6.67k
Pension goes up by 16.67k
Net cost 10k


Tom with rental income 10k sends cheque for 10k
His pension increases by 10k
No rebate
Net cost 10k


Whether Tom makes pension contribution or not is immaterial to his tax liabilities.

Why is Tom's pension contribution less than John's?
Because of the rental income


What is the effect of the rental income?
The effect of the rental income is to reduce the contribution to the pension versus another person who has no rental income.
 
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moneymakeover said:
So let me try again

John, no rental income sends cheque for 16.67k to his pension
Receives rebate 6.67k
Pension goes up by 16.67k
Net cost 10k


Tom with rental income 10k sends cheque for 10k
His pension increases by 10k
No rebate
Net cost 10k


Whether Tom makes pension contribution or not is immaterial to his tax liabilities.

Why is Tom's pension contribution less than John's?
Because of the rental income


What is the effect of the rental income?
The effect of the rental income is to reduce the contribution to the pension versus another person who has no rental income.
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I am out of this topic now. At this point I think you are trolling now. I and others have explained how this works and you still want to continue post on it.
 
Rarely have I seen something so simple turned into something on the lines of quantum physics. Many regular contributors have explained how this works but the original poster is not listening. Do whatever you want. I'm out.
 
Well I think I also have explained that having rental income reduces the effective pension contribution

Which was disputed until our little exchange earlier

The title "Using AVC to reduce Rental Tax Liability - Is it Possible?."

The Avc doesn't actually reduce rental liability.

You can make an Avc. If you do Revenue Commissioners can use some of that towards your rental income liability. You're paying your rental income liability. And making a reduced Avc contribution.

Think of it as
Pay your 4k tax liability
Pay 6k to pension (results in 10k increase)

The answer to the question "Using AVC to reduce Rental Tax Liability - Is it Possible?."
No. In fact, the rental liability reduces the Avc.
 
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Rarely have I seen such unnecessary complexity on AAM.

- Someone has rental income
- He also has PAYE income
- The income tax on his rental income is €4k
- Instead of paying €4k to Revenue, he withdraws €10k from his deposit account and contributes it to his pension
- The €4k tax liability and the €4k of tax relief cancel each other out
- He’s now got €10k in his pension fund, but it only cost him €6k, because he used €10k of his savings but he then didn’t have to pay Revenue the €4k that they would otherwise have got.

His choice was therefore:

- Use €4k of his savings to pay his tax bill, leaving him with €6k of savings, or

- Contribute €10k of his savings to his pension fund leaving him with no savings, but with €10k in his pension fund
 
The point I'm trying to emphasise is:
There are two things going on.
Which stand totally independently.
A tax payment of 4k and an Avc net 6k equals gross 10k.
If you choose to make a pension contribution you certainly can.
But don't confuse it with a tax liability.
Also don't encourage everyone out there with a 4k rental income liability to pay 10k to their pension thinking they are getting a bargain. They're not.
And that by not paying 10k they're missing out on free money.
 
moneymakeover said:
The point I'm trying to emphasise is:
There are two things going on.
Which stand totally independently.
A tax payment of 4k and an Avc net 6k equals gross 10k.
If you choose to make a pension contribution you certainly can.
But don't confuse it with a tax liability.
Also don't encourage everyone out there with a 4k rental income liability to pay 10k to their pension thinking they are getting a bargain. They're not.
And that by not paying 10k they're missing out on free money.
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They are missing out on free money. Why? Because of the ‘use it or lose it’ nature of AVCs.

I have €10k on deposit. I need to pay Revenue €4k which will leave me with €6k.

However, if I’m willing to give up that €6k, I can put €10k into my pension fund.

That’s the deal: I pay €6k to get €10k...free money, or at a minimum the free use of it to invest for a prolonged period.
 
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Gordon Gekko said:
They are missing out on free money. Why? Because of the ‘use it or lose it’ nature of AVCs.

I have €10k on deposit. I need to pay Revenue €4k which will leave me with €6k.

However, if I’m willing to give up that €6k, I can put €10k into my pension fund.

That’s the deal: I pay €6k to get €10k...free money, or at a minimum the free use of it to invest for a prolonged period.
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Before I clarified matters people might have mistakenly believed there was some advantage in making the 10k contribution.

There isn't. Make the 4k tax payment. And any avc that suits.
 
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moneymakeover said:
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Before I clarified matters people might have mistakenly believed there was some advantage in making the 10k contribution.

There isn't. Make the 4k tax payment. And any avc that suits.
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Let’s give it one more go; there are effectively two options:

- Pay €4k of tax off into the ether, or
- Pay an additional €6k into your pension and Revenue will divert the €4k tax payment into your pension

I think the point you’re missing is that the €4k of tax is an existing liability; it already has to be paid. By ponying up a further €6k, I rescue my €4k from Revenue’s clutches and get it back to put into my pension.
 
moneymakeover said:
Before I clarified matters people might have mistakenly believed there was some advantage in making the 10k contribution.

There isn't. Make the 4k tax payment. And any avc that suits.
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There is an advantage. The tax payment goes into your pension if you make the avc rather than to Revenue. That's the benefit. The AVC limit is capped by your EARNED income regardless on the amount of UNEARNED income (I.e. rental income) you have.

If you accept that then the rest is just balancing your tax liabilities with Revenue.
 
Itchy said:
There is an advantage. The tax payment goes into your pension if you make the avc rather than to Revenue. That's the benefit. The AVC limit is capped by your EARNED income regardless on the amount of UNEARNED income (I.e. rental income) you have.

If you accept that then the rest is just balancing your tax liabilities with Revenue.
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Firstly the tax payment MUST be paid. Nobody disputes that?

After that you can make any amount of avc contributions you like subject to paye income limits/age.

What I'm saying is don't confuse the two.

People seem to think they must make lump sum pension contribution end of tax year or they are missing out. They're not. Pay the tax. Pay the avc.

If you can afford it AND you want to make an additional Avc by all means do this way you describe.

But you can always pay even more avc. If the paye /age allows it.

The pension tax advantage exists completely separately from rental income.
 
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