October in Ireland is primarily known for two things: Halloween and tax returns. If you’re self-employed, the latter might be the real horror! Although tax season is just behind us, it is important to be as organised throughout the year as possible. Before we know it, it will be looming once more. This might sound slightly dramatic, but once you’re organised, you have nothing to dread!
We mostly just write off our tax money, taking it as a given that it’s due each year, and that we’ll never see it again. However, we would like to show you an alternative that will allow you to pay less tax and save for the future by making pension contributions to reduce tax. A win-win!
So, did you know that paying into a pension can reduce tax? In this article, we’re going to show you exactly how you may be able to reduce the amount of tax you pay each year by saving for your retirement with an approved pension plan. In some cases, you may even be able to reduce your tax bill to zero.
Don’t be discouraged if you think this is all going to get too complicated. You just need to be aware of some Revenue rules around how much you can reduce your tax bill by. These are linked to your age and taxable earnings each year.
Let’s say you are on the higher rate of tax (40%). For every €1,000 you put into a savings account for retirement planning (i.e., a pension), you will reduce your bill to Revenue by €400. If you put €10,000 into your pension plan before the 31st of October (if filling using Revenue online (ROS) payment date is 16th of November) it will reduce your tax bill by €4,000.
|
Tax Rates |
40% Tax |
20% Tax |
|
Gross Payment |
€1,000 |
€1,000 |
|
Tax Relief Available |
-€400 |
-€200 |
|
Net Cost To You |
€600 |
€800 |
Depending on your age, you may qualify for tax relief up to a certain percentage of your earnings. Let us show you an example of how your age plays a factor in the calculation of your tax relief.
Example:
You are 42 and earn €50,000 per annum from employment; you are eligible to obtain tax relief against total pension contributions of up to €12,500 per annum (25% of your gross salary).
Income tax is dependent on individual circumstances; however, typically 40% would be applicable in this instance.
With 40% tax relief, a contribution of €12,500, will cost you €7,500 in your take-home pay.
|
Under 30 |
30-39 |
40-49 |
50-54 |
55-59 |
60 and over |
|
15% |
20% |
25% |
30% |
35% |
40% |
Tax Relief By Age Bracket
Now that you understand how contributions can reduce tax, we have provided the following steps to help you get started.
Step #1 If you wish to save an extra amount in the tax year, please check out the Revenue limits, or contact Campion for advice
Step #2 Campion Insurance will then issue you proof of payment once you have paid the amount you wish to save. Your payment must be received by October 31st or November 16th if using ROS.
Step #3 Proof that this contribution was paid against your taxable income must be presented to your local Revenue office.
Now that you have the steps you need, you’re at a fork in the road. You can either pay your tax bill and say goodbye to the money forever, or, you can deposit your earnings into an approved pension plan. Not only will this reduce your tax bill, but the pot of money will also be there to support you in your retirement!
Sounds great, right? There’s more. Starting a pension has so many other advantages. Keep reading to find out.
Any money paid into a pension plan will benefit from tax relief, subject to Revenue limits. No other form of saving qualifies for this benefit. So, as you can see, a pension plan really is the most tax-efficient way to save for your old age.
However, aside from reducing the amount of tax you pay each year, there are various other attractive reasons to start a pension plan today such as the ability to draw tax-free lump sums upon retirement.
To help you get started we have written a step-by-step guide to starting a pension in Ireland where we discuss these benefits and more.
So, now what?
Support from professional financial advisors, like our expert Campion team, can help make the process of setting up and managing a pension plan as smooth and straightforward as possible. Our team will provide the right advice to help you increase your pension contribution to reduce your tax bill.
Our dedicated team will walk you through all the below and more.
To jump-start your journey and help you reduce tax through pension contribution, we have relayed below your first key steps.
Step #1 You can try out the pension calculator tool
Step #2 Set up a meeting with us by either filling out this form or calling our team on 0818 297 600
When you have a meeting with us, we’ll go through these in detail so you can find the right plan for you and significantly reduce your tax bill. So, what are you waiting for? Get in touch today.
Starting a Pension in Ireland: A Step-By-Step Guide
Consolidating Pensions: A Guide to Combining Pensions in Ireland
