John is self-employed, aged 45 years, and his Net Relevant Earnings for 2015 were €80,000. He has paid €18,000 Preliminary Tax in 2015 and his total tax bill for 2015 is €25,000. This leaves him owing €7,000 for 2015. 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 2015 is €7,000 (i.e. €25,000 less €18,000) 

Preliminary Tax due for 2016 is €25,000 (i.e. 100% of 2015’s Final Liability)

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

 

Scenario 2 (After Pension Contribution)

Before 31st October 2016, John makes a €20,000 Pension Contribution and backdates the tax relief to 2015.

Actual Tax Bill for 2015 reduced to €16,800 i.e. the total Tax Bill for 2015 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 2015. Therefore, a refund of €1,200 is due from the Revenue.

Preliminary Tax due for 2016 is reduced to €16,800 (i.e. 100% of 2015’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)

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.