Carrying forward tax relief on PRSA conbtributions

[Savvy Sally]

Hello all,

I previously asked this community for a view on setting up a PRSA and carrying tax relief forward as I do not currently have earned income. As mentioned I am in the fortunate position to have a lump sum that I can invest for the next 15 years. After careful consideration of my overall circumstances, taking the views of this community into account which I am very grateful for, the fact that I need pension diversification and flexibility on drawdown timing I have decided to go ahead with setting up this PRSA.

I have contacted a number of life assurance companies and brokers to discuss setting up this PRSA. The brokers I have spoken to were not supportive of the idea. One life assurance company, direct sales team, has a compelling offering of an execution-only PRSA with low annual management fees and access to a broad range of passive index funds which suits my needs. However, said life assurance company has come back to me stating that “Under Irish tax rules, you cannot carry forward (roll forward) unused PRSA tax relief to future years”. This statement is contrary to my understanding of tax and pension rules based on a the following (attached for reference):

1. Chapter 24 in the Pensions Manual (see the bottom of page 5 specifically) states that relief can be carried forward
2. The Irish Legal Guide also states that “unrelieved contributions can be carried forward….”
3. The current Institute of Bankers (IOB) pension education materials state that you can carry relief forward on unrelieved contributions to PRSAs

Does anyone in this community have experience of carrying unrelieved contributions to PRSA forward to future years? Are there any other citations or references that you would include to support the argument that relief can indeed be carried forward?

All thoughts and guidance welcome.

With many thanks in advance.

 

[AAAContributor]

As a principle, unused tax relief can be carried forward.

I think the issue for you might be the source of your future earned income and the tax relief that you will look to claim thereon.

If you start your own business, say, as a sole trader, you have "relevant earnings" upon which to claim tax relief for the (prior) contributions made to the PRSA (within the age-related and overall earnings limits of course).

However, if you become a salaried employee and become a member of the employer's pension arrangement, tax relief for such an employee is available for contributions to a AVC PRSA (which is a PRSA specifically tied to the employer's main scheme). The PRSA that you previously opened, and made contributions to, is not a AVC PRSA. This is where the claiming of future tax relief may be problematic.

This is my understanding of Page 3 Paragraph 24.2 of Chapter 24 of the Pension Manual dealing with PRSAs.

 

[Robovac rider]

You can carry forward tax relief on your PRSA as stated above.

Also as stated above if your only source of future income is from pensionable employment you cannot claim tax relief from your PRSA from these earnings.

If you are confident that you will either set up your business, or that you will have earnings from non pensionable employment in the future, you will be able to claim PRSA tax relief.

You could have pensionable and non pensionable earnings in any future year if you have more than one employment.

There is the facility to claim tax relief for PRSA payments made in previous years on revenue tax forms.

You could deal with any execution only broker if you decide on your choice of funds and risk levels.

PRSA.ie and LA Brokers are two such brokers.

 

[Savvy Sally]

However, if you become a salaried employee and become a member of the employer's pension arrangement, tax relief for such an employee is available for contributions to a AVC PRSA (which is a PRSA specifically tied to the employer's main scheme). The PRSA that you previously opened, and made contributions to, is not a AVC PRSA. This is where the claiming of future tax relief may be problematic.

This distinction is very helpful and makes perfect sense. Thank you so much for this clear explanation, it is much appreciated.

 

[Savvy Sally]

If you are confident that you will either set up your business, or that you will have earnings from non pensionable employment in the future, you will be able to claim PRSA tax relief.

You could have pensionable and non pensionable earnings in any future year if you have more than one employment.

There is the facility to claim tax relief for PRSA payments made in previous years on revenue tax forms.

Also, very helpful. Due to consideration as to the source of my future earnings is required for sure. Thank you!