Pay and file your tax returns in full through the Revenue Online Service (ROS) and you have until Wednesday 165th November 2023, under standard Revenue rules, to make last-minute personal pension contributions.
What does this mean?
This means that anyone who is self-employed and wishes to make a lump-sum contribution to their PRSA or Personal Pension Plan must make payment prior to 31st October or if applicable 15th November in order for tax relief to apply and be credited against their tax 2020 income tax balance.
What are the advantages of meeting this tax deadline?
1. Firstly the contribution may be charged against your income tax bill for last year and this is a final opportunity to reduce last year’s tax bill. If you don’t avail of this opportunity before the tax deadline, then you may have paid more tax than you need to have paid for last year and you have missed your last chance to get this tax back or reduce the income tax you are about to pay.
2. Secondly, if you make a pension contribution before the tax deadline for this year and reduce your previous year’s final tax liability to its lowest figure, then you may calculate and pay your Preliminary Tax for this year as that same lower amount.
What are the limits on my pension contributions?
An individual will get income tax relief on their pension contributions up to an annual limit related to their age and net relevant earnings subject to an earnings cap of €115,000. Income tax relief is given at the individual’s marginal (higher) rate.
If the individual is self-employed they must include their pension contributions in their self-assessment tax returns in order to get income tax relief.
Age-related percentage limit for tax relief on pension contributions
Under 30 = 15%
30-39 = 20%
40-49 = 25%
50-54 = 30%
55-59 = 35%
60 or over = 40%
For example, an employee who is aged 42 and earns €40,000 can get 40% tax relief on annual pension contributions up to €10,000.
It makes sense not to exceed those limits – but where possible to increase your contributions once you reach an age that entitles you to a greater amount of tax relief.
What if I don’t yet have a Pension Plan?
Personal pension plans are easy to set up and as a financial broker, we can help you reduce the associated plan costs whilst helping you choose and maximize the returns from the most suitable investment funds. What if I have a limited company?
The personal pension tax deadline is only relevant for contributions paid by individuals. Company-paid contributions are normally allowable as a trading expense in the accounting year in which such contributions are actually paid except for ‘special contributions’. The backdating provisions do not apply to company-paid contributions, so any lump sum only needs to be made prior to the end of your company’s trading year. That said if your company year-end is 31st December it’s time to start discussing your likely corporation tax bill with your accountant and to gear up for a lump sum injection – discover more about our low-cost Executive Pension plan offerings.
For more information
Contact: Ken O’Gorman – Director – QFA, SIA, MCIBS
Principal Consultant – Pensions & Investment Specialist – One Quote Financial Brokers on: 01 845 0049 or call me directly on: 087 665 8516.
Or enquire online and give us a quick outline of how we can help. There is no charge for initial advice or any obligation to proceed!