'In this world nothing can be said to be certain, except death and taxes.' Benjamin Franklin (1706-90).

Looking to Reduce your Tax Bill? Act Now.

We are now entering that phase of the year when our personal taxes are paid. We have two significant tax deadlines approaching. If you are self-employed, you will have your preliminary tax bill and if you are an employee, you have the opportunity to effect an AVC (Additional Voluntary Contribution) and claim back the tax that you have already paid last year. By contributing to the appropriate retirement vehicle you can not only obtain tax relief but also add significantly to the value of your Retirement Fund. As mentioned, there are two key dates depending on your employment status.

1) Self-Employed?

The Revenue Pay and File deadline for self-assessed income tax payers is October 31st, or November 14th if you file online. Whether you decide to top-up your regular pension or invest a lump sum into a pension plan you may qualify for significant tax relief on this money. So don't delay - act now!

2) Are you an Employee or a Director of your own business?

You have the good sense to contribute to your Emplpoyer sponsored pension plan. Make sure that you are maximising your AVC(Additional Voluntary Contribution) and obtaining further Tax Relief. Apart from the obvious benefits of boosting your retirement fund, you are also maximising your Tax Relief on your earned income. You have an 'Age Related Allowance'.

Additional Voluntary Contributions or AVC's are extra savings that you can make towards your retirement fund. By doing so, you will:

1) Enhance your Retirement Benefits.

Increase your expected tax-free lump sum at retirement. This is potenetially 25% of your retirement fund if you are a member of Defined Contribution Pension Scheme or 1.5 times your salary (subject to Revenue Rules).
Boost your retirement income.
2) Tax Savings.

Any growth on your AVC investment fund is tax free.
You also qualify for tax relief on your pension contributions. If you contribute prior to October 31st next, you can elect to cliam back income tax paid within the tax year 2016. If you are on the marginal tax rate of 40%, this could work out as a potential saving of €40 for every €100 you contribute.
3) Choice.

You choose how much you wish to pay (within the applicable age related tax bands. You can establish the tax benefit resulting from your contribution.

4) Freedom.

You decide how you want to invest your AVCs. What fund(s) do you wish to invest in? You can choose the particular fund and you can effect an AVC independent of your main Scheme.

Maximum Tax Relief for Pensions

The maximum pension contribution, in any one year, for which you are entitled to tax relief, is related to your age and is expressed as a percentage of your gross income. The maximum gross earnings limit for tax relief on pension contributions from 2016 is €115,000. The maximum tax relief you receive as a % of your earnings for pensions in Ireland is set out below.

Tax Relief by Age Bracket

 

Under 30 30 to 39 40 to 49 50 to 54 55 to 59 60 and over
15% 20% 25% 30% 35% 40%

By adding a little now to your pension, you can not only benefit from a better retirement but also from immediate tax relief making your contribution more valuable to you.

Maximising your pension contributions is a great way to provide an adequate income in retirement. The current state pension of €12,391.60 (based on full contributions) is unlikely to provide an individual with their desired level of income in retirement and others sources of wealth will undoubtedly be required to supplement retirement income.

For advice on minimising your tax bill for 2016 using pension contributions please contact us on 071 919 4000 or info@moneyplus.ie.