Maximise tax relief tax on pension contributions

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assa99

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Married couple, no kids, no mortgage, no debt. Both 52. We want to maximise the tax effectiveness of pension contributions for the lower earner.
Spouse A - €60,000 per year PAYE plus minor investment and rental income.
Spouse B - €38,000 per year PAYE plus around €3000 rental income but this varies depending on e.g. repairs/voids etc.
Both submit Form 11s - if that is relevant.

Spouse B is a member of the company DC scheme but does not make any AVCs at the moment. We want to max this out to the 30% maximum (€10,500 per year) and ideally to do this through payroll deductions rather than end-of-year.

Step 1: select joint assessment and ensure all available tax credits transferred from spouse B to spouse A. So then for 2024 Spouse A pays 20% up to €51,000 and 40% above this, while Spouse B pays 40% above €33,000. I assume this is the correct thing to do?

Step 2: How do we set it up so that the maximum possible amount of the PAYE is charged at 40%? I assume we need to do something with the tax credits? What we don't want is for the PAYE to be taxed and therefore tax-relieved at 20% through payroll and then the rental income (which is not eligible for pension relief) to be taxed at 40% at year end - we want it to be considered the other way round.

I hope that is clear, it is a bit complicated to explain. In a nutshell though, what we want to do is to maximise the amount of pension relief at 40% rather than 20% and are not sure how to do this. Thank you
 
If you are jointly assessed, when you submit your form 11 all your income including earned and rental will be totalled up and the tax will be deducted in the most efficient manner. The full amount of your joint 20% band will be used and any remainder will then be @ 40%.
It doesn't matter how you set up your credits and bands.
The only slight problem you will have is how to distribute each person's share of after tax income after submitting form 11.
 
S class said:
If you are jointly assessed, when you submit your form 11 all your income including earned and rental will be totalled up and the tax will be deducted in the most efficient manner. The full amount of your joint 20% band will be used and any remainder will then be @ 40%.
It doesn't matter how you set up your credits and bands.
The only slight problem you will have is how to distribute each person's share of after tax income after submitting form 11.
Click to expand...
Thanks @S class - that makes sense.
So in that case what is the point of transferring credits/allowances between the two people? Or do you mean it doesn't matter how Spouse B's credits are distributed between PAYE and rental?
 
The only effect of different sharing of credits and bands will be the level of take home pay of each partner during the tax year. At the end of the tax year it makes no difference, the total tax liability will be exactly the same.
 
Thanks. Sorry, I'm not sure I understand though.
On the Form 11 pension contributions page it asks
"If you are a member of an Occupational or Statutory Pension scheme state the amount of contributions to that scheme from 1/1/2022 to 31/12/2022 (for which no further relief is due)"
and then
"Amount paid between 1/1/2023 and 31/10/2023 for which relief has not already been granted and for which relief is being claimed in 2022"

but if AVCs had been given relief at 20% through payroll then more relief would be due on some of it at least...? So how do you complete the Form 11? Thanks
 
You just fill in the pension and AVC amounts for each partner. It doesn't matter what relief was given from wages. If only 20% was given from one person's wage it will balance out when the form 11 is submitted. There would be a tax refund due.
The only limiting things are the total age related pension tax relief for each partner and the amount of available 20% tax band that can be transferred between partners. The maximum allowable 20% transferrable tax band will be automatically calculated on form 11.
It doesn't matter if you don't set this up properly yourself.
The only way you would end up getting 20% relief would be if you run out of income taxable at 40%.
You could always hold off making some AVCs from income and paying a lump sum after checking out what the maximum allowable tax free pension contribution is. This will be calculated by form 11. You can then pay in whatever amount is still allowable and add this to your form 11 before submitting it.
Form 11 is a useful tax calculation tool. You can play away with it before submitting it.
You can add different pension contributions to check exactly how much can be added to gain the maximum tax relief.
 
S class said:
You just fill in the pension and AVC amounts for each partner. It doesn't matter what relief was given from wages. If only 20% was given from one person's wage it will balance out when the form 11 is submitted. There would be a tax refund due.
The only limiting things are the total age related pension tax relief for each partner and the amount of available 20% tax band that can be transferred between partners. The maximum allowable 20% transferrable tax band will be automatically calculated on form 11.
It doesn't matter if you don't set this up properly yourself.
The only way you would end up getting 20% relief would be if you run out of income taxable at 40%.
You could always hold off making some AVCs from income and paying a lump sum after checking out what the maximum allowable tax free pension contribution is. This will be calculated by form 11. You can then pay in whatever amount is still allowable and add this to your form 11 before submitting it.
Form 11 is a useful tax calculation tool. You can play away with it before submitting it.
You can add different pension contributions to check exactly how much can be added to gain the maximum tax relief.
Click to expand...
Thanks @S class!
 
Have you considered how your will get the money out of the AVC and how it will be taxed. I do not have all the answers, but can you take some of it as a tax free lump sum. What happens to the remaining amount.
 
Any money left after taking your maximum tax free lump sum can be used as follows.

Buy an annuity.
Buy an ARF.
Withdraw as taxable income.

Any one of these can be selected or any combination of all three can be selected.
 
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