Treatment of Pension Contributions on Joint Assessment

[Zygnoth1]

Hi All

Recently married and looking to set up a pension for my partner. I am a high rate tax payer and my partner is just inside the top band.

Have looked on the Revenue site and in the threads of this board and I am still pretty confused on the treatment of pension contributions on joint assessment.

Essentially I am trying to understand if there is a more tax efficient way for me to use my high rate income to contribute to his pension rather than some of his contribution being at 20%.

Is the contribution limit calculated based on combined or individual income? When contributing is this deducted from our combined or individual income in the joint assessment calculation? Any other advice?

Thanks in advance for any guidance.

 

[JoeRoberts]

No joy - can't transfer any reliefs between spouses for pension.
One of many anomalies in our Pension/Tax system as at retirement you could end up paying top rate tax on both pensions at exit based on combined marginal tax rate.

 

[Joe_90]

I'd agree in principle but you need to look at the overall picture.

Husband earns 60k wife earns €33,500. Wife pays in €3,000 into a pension.

When they are jointly assessed the total income will be €90,500 with the husband getting an increased standard rate band that the wife did not use.

 

[Zygnoth1]

Thanks both - this is very helpful.

So the reliefs (max contribution %; income limitation etc.) apply to the individual income levels. However, when you come to do your joint income tax assessment any pension contributions are deducted from income before applying tax credits and the applicable income tax rates so effectively you would get the benefit of it at the higher rates in the end.

Let me know if I am misunderstanding.

 

[44brendan]

Essentially I am trying to understand if there is a more tax efficient way for me to use my high rate income to contribute to his pension rather than some of his contribution being at 20%.

Assumption is that you are currently maximizing your own contributions. If not then you could increase your contributions by means of AVC's. Obviously this would only effect your own pension but if you are both happy with the "what's mine is ours" approach it should benefit your joint pensions.