€80,000. He has paid €18,000 Preliminary Tax in 2014 and his total tax bill for 2014 is €25,000. This leaves him owing €7,000 for 2014. He does not currently pay pension contributions.

The two scenarios below show just how a lump sum pension contribution can save John lots of money!

Scenario 1 (No Pension Contribution)

Balance of tax due from 2014 is €7,000 (i.e. €25,000 less €18,000) 

Preliminary Tax due for 2015 is €25,000 (i.e. 100% of 2014’s Final Liability)

Total tax due on the 31 October is €32,000


Scenario 2 (After Pension Contribution)

Before 31st October 2015, John makes a €20,000 Pension Contribution and backdates the tax relief to 2014.

Actual Tax Bill for 2014 reduced to €16,800 i.e. the total Tax Bill for 2014 of €25,000 less tax relief of €8,200 {41% on the pension contribution of €20,000} However, €18,000 Preliminary Tax was paid already in October 2013. Therefore, a refund of €1,200 is due from the Revenue.

Preliminary Tax due for 2014 is reduced to €16,800 (i.e. 100% of 2014’s final liability).

Total tax due on the 31 October is €16,800 – €1,200 refund = €15,600 (and €20,000 is added to you pension pot)

Tax Relief for Employees

John is a 45 year old employee in an occupational pension scheme who paid Income Tax at the 41% rate in 2014. He makes an AVC single premium contribution of €10,000 by October 31st 2015 and informs his local tax office by October 31st 2015 that he wishes to backdate relief on this to 2014. He is entitled to the following refund:

Gross Pension Contribution        €10,000

Tax Refund                                        € 4,100

Net Outlay                                        € 5,900

The information contained in this document is based in Southeast Financial Services understanding of legislation and Revenue practice as at September 2015 which may change in the future. This article aims to give information, not advice. Always do your own research and/or seek out advice from a Financial Broker before acting on anything contained in this article.

Philip Cullen t/a Southeast Financial Services is regulated by the Central Bank of Ireland

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