The deadline for filing 2014 income tax returns is 31 October 2015 or 12 November 2015 where returns are filed and the tax paid through ROS.
You can reduce your 2014 tax liability by making a pension contribution on or before 31 October 2015 or on or before 12 November 2015 and backdating the income tax relief against the 2014 tax year.
Tax relief is available on pension contributions at the highest rate of income tax paid.
The maximum pension contribution you can make on which you will receive the tax relief is dependent on your age and net relevant earnings (NRE) for the year.
It rises from 15% of NRE if you are under 30 to 40% if you are over 60.
The NRE is set at a maximum of €115,000 for 2014 and therefore any relevant earnings above this are excluded when calculating the maximum tax allowable pension contributions.
NRE are relevant earnings such as employment income or profits from a trade or profession, less charges on income (e.g. tax deductible maintenance payments, covenant payments) and losses or capital allowances related to your relevant earnings. Certain types of income not regarded as relevant earnings include investment income (e.g. rental income or deposit interest) pension income and your spouse’s income.
Any pension contributions which cannot be fully relieved in a tax year can be carried forward and added to the qualifying pension contributions in the following year.
The maximum tax relieved pension fund on retirement is known as the Standard Fund Threshold which was set at €2m from 1 January 2014. Individuals with pension rights in excess of the SFT are now not entitled to any tax relief on pension contributions.
Self-employed individuals, company directors and employees can claim income tax relief on personal pension contributions or Personal Retirement Savings Accounts contributions. Employees and Company directors who are members of occupational pension schemes can also avail of tax relief if they make an Additional Voluntary Contribution.
Your preliminary tax for 2015 is normally based on the lower of the following:
- 100% of the previous tax year’s liability or
- 90% of the current year’s final liability.
So the good news is that by you making a pension contribution and electing to have the tax relief backdated to 2014, the tax payable for 2014 can be reduced by up to 41% of the pension payment and in addition the preliminary tax payment can be reduced by a similar amount by basing the preliminary tax payment on 100% of the previous year’s tax liability.