Can you still reduce your 2018 income tax liability?
Yes, it’s that time of the year again. This note details, with some examples, the Revenue rules around backdating relief for pension contributions and how you can reduce your 2018 income tax liability through your return in 2019.
Self-Assessment 2019 – Important Dates
Individuals who both pay and file their tax returns through the Revenue On-line Service (ROS) have until Tuesday 12th November 2019 to pay a pension contribution and elect to backdate the income tax relief against the 2018 tax year. Those who do not qualify for the ROS extension must do this by 31st October 2019.
Can you make a pension contribution now & backdate relief to 2018?
Yes you can, provided the contribution is paid and relief is claimed before the tax return filing dates mentioned.
Example 1 Self-Employed:
Sean has been self-employed for a number of years and files returns via ROS. He can contribute to either a personal pension (RAC) or a PRSA. As he has relevant earnings now and in 2018, he can make a pension contribution now and backdate relief to 2018.
Example 2 Employee but not a member of a pension scheme:
Michael has been in the same employment since 2017 and is not a member of his employer’s pension scheme. For tax relief purposes, the same rules apply to both Sean and Michael.
Michael can make a pension contribution to either a personal pension or a PRSA and backdate relief to 2018.
Example 3 Employee a member of a pension scheme:
Eamon has been a member of his employer’s pension scheme since 2016. To qualify for relief, he must be a scheme member when he makes the contribution and for the period in which he is claims relief. Eamon can make an AVC (additional voluntary contribution) now and backdate relief to 2018.
Additional frequently asked questions:
- Stephen has been a scheme member since 2015. His 50th birthday was 12 July 2019. What are his age based personal relief limits?
25% for 2018 and 30% for 2019 (see table below for maximum contributions allowed).
- Lorraine is currently an employee and joined her employer’s pension scheme on 1 January 2019. She was self-employed for all of 2018. Can she make a contribution now and backdate relief?
Yes, she can make a PRSA contribution now and backdate relief against her relevant earnings in 2018.
- Finbarr was self-employed from January to April 2018. He was in non-pensionable employment from May 2018 onwards. Can he backdate a contribution made in 2019?
Yes, as he has relevant earnings in both 2018 and 2019.
- Kevin was a member of his employer’s pension scheme until 31 December 2018. He started a new job in January 2019. Can he make a contribution now and backdate relief?
No, Kevin cannot make a contribution to his former employer’s scheme as he is no longer a member of that scheme.
Maximum Pension Contributions:
For contributions paid in 2019 and set against 2018 earnings, an earnings cap of €115,000 applies for tax relief purposes to the total contributions to PRSAs, personal pensions and employee / AVC contributions to company pension schemes.
The percentage relief limits are:
|under 30 years||15% of *net relevant earnings|
|30-39 years||20% of *net relevant earnings|
|40-49 years||25% of *net relevant earnings|
|50-54 years||30% of *net relevant earnings|
|55-59 years||35% of *net relevant earnings|
|60 years plus||40% of *net relevant earnings|
*For employees, earnings means gross pay for tax purposes. For the self-employed, earnings means net relevant earnings, that is, earnings less allowable expenses.
We hope you found this update and the details of use to you.
As with all financial decisions, and particularly long-term retirement planning, always seek the advice of an independent professional before making any decisions.
Gerard O’Brien LL.B LL.M CFP® QFA is a Certified Financial Planner and the Owner of Heritage Wealth Management, a Financial Planning practice based at 27 Cook Street, Cork.
For more information, contact Gerard at firstname.lastname@example.org www.heritagewealth.ie
Disclaimer: All data and information provided within this article is for informational purposes only. Heritage Wealth Management Limited makes no representations as to accuracy, completeness, suitability, or validity of any information and will not be liable for any errors, omissions or delays in this information or any losses, injuries, or damages arising from its use.