PAYE Employees – Tax Relief

PAYE Employess are sometimes the forgotten people of financial planning.  Directors and Self-Employed individuals are generally well covered for financial advice, but the PAYE Employee is not always maximising tax relief.

 

Additional Voluntary Contributions (AVC) Tax Relief

One area where an employee can receive significant tax relief is through additional voluntary contributions (AVC’s) to their group pension scheme.  Such contributions boost the benefits received at retirement and gain significant tax  relief.

 

PRSA AVC

The market is now such that the employee can arrange the AVC themselves outside the company scheme – this is facilitated under a Personal Retirement Savings Account (PRSA) AVC.  It can be difficult for employees to get information on AVC’s through their company but the PRSA AVC provides an ideal opportunity to maximise tax relief independently of your group pension Scheme.

What if I’m not in a Pension Scheme?

If you are not a member of an Occupational Pension Scheme you can still avail of tax relief through a contribution to a Pension, be it a Personal Pension Contract or a Personal Retirement Savings Account (PRSA).

 How Much Can I Contribute to my Plan?

As you would expect “terms and conditions” apply to the amount you can contribute to a Pension for tax relief purposes.

Basically the amount you can contribute is related to your age with the following rates applicable:

Under Age 30                    15% of Earned Income

30 – 39                              20% of Earned Income

40 – 49                              25% of Earned Income

50 – 54                              30% of Earned Income

55 – 59                              35% of Earned Income

60 plus                              40% of Earned Income

While the above rates are guides you also need to take into consideration how much you have personally contributed in the year in question, the level of benefits you are entitled to and a cap on your salary where applicable.

How Do I Claim the Relief?

If your Pension Contribution is not deducted from your salary, you need to claim for the relief by contacting your local Inspector of Taxes and advising the amount you have contributed.  Usually you would include a copy of your P60 for the year in question along with proof of the contribution and a covering letter.

What is the Deadline Date for making the Contribution?

By making a contribution prior to October 31st of this year you can claim tax relief in respect of the previous year.  So if you want to maximise your Pension Tax Relief in respect of 2014, you need to contribute prior to October 31st 2015.

Tax Free Growth

Remember that money invested in a Pension Plan benefits from a tax free environment on the growth.  DIRT or Captial Gains tax is not deducted from a Pension Fund so this makes it a very attractive environment for someone commited to long term investing.  The tax free environment and relief on the contributions make Pension Plans extremely tax efficient savings vehicles.

Tax Relief on Your Life Assurance

Certain forms of life assurance cover can be allowed for tax relief and if you are eligible for such relief, it serves to reduce the actual cost of protecting your dependants.