How to reduce your 2017 tax bill by making a pension investment:
By contributing to a new or existing pension contract BEFORE 31 October 2018 or 14 November 2018 (Revenue On Line Service) you can elect to back date the tax relief to the 2017 tax year.
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1. Example if self employed.
Lets say Mary’s tax bill for 2017 is calculated to be €10,000.
If Mary made a preliminary tax payment for 2017 of €6,000 then the balance due this October/ November is €4,000 (€10,000 – €6,000).
If Mary makes a pension investment of €8,000 (tax relief – marginal rate 40% ) = €3,200 against final tax liability for 2017.
This in turn will reduce the preliminary tax due for 2018 – if based upon the 100% option.
Therefore, Mary reduces final tax liability for 2017 by €3,200 and the preliminary tax outlay for 2018 by €3,200
Amounts payable by Mary as follows:-
|If Mary makes NO pension investment||If Mary makes €8,000 pension investment|
|Final tax balance 2017||€4,000||€800|
|Preliminary tax for 2018||€10,000||€6,800|
THEREFORE – for an additional outlay this year of €1,600 Mary can settle tax bill for 2017 & preliminary tax bill for 2018.
In addition, Mary will have made an investment of €8,000 into her pension fund.
2. Can employees backdate Income Tax relief on AVCs or AVC PRSAs?
Yes ! Provided it is paid before 31 October 2018.
An employee has the option to either
- Invest a single investment into the AVC of their main scheme.
- Or, invest into an AVC PRSA and elect in writing to the Revenue to back date relief against 2017 Income Tax paid.
If you have a pension planning or product question please do contact us :
This article was written by Rory Nelson, founder of Nelson Life. Rory is celebrating 20 years in financial planning this year. Professional qualifications include; UCD Specialist Diploma in Wealth Management, Pension Trustee Practitioner PTP, UCD Professional Certificate in Stockbroking, UCD Professional Certificate in Asset Management (SIA), QFA FLIA, Pensions Diploma, Mortgage Advice Diploma, CFP module – Tax & Estate Planning and has a degree in BA Accounting & Finance. He has regularly participated in national financial press.
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