Option to reckon temporary reckonable service

[Daddy Ireland]

I have been told that I have periods of temporary reckonable service having worked in a Voluntary Hospital/Nominated Health Agency. The cost to me to reckon this service is approx 15k. I think it makes sense to pay this as it will result in an annual pension of 6k as opposed to 3k if I don't pay in the 15k. Am I entitled to claim tax relief at 40% on the 15k and how would I go about getting the tax relief. I am jointly assessed with my wife working in the private sector.

 

[LDFerguson]

There's a Key Post in this forum about the relative merits of buying back service vs the alternative of investing in AVCs or AVC PRSAs. https://www.askaboutmoney.com/threads/should-i-buy-years-or-contribute-to-an-avc-prsa.60842/ There are also some other ghood key posts in this forum that you might find useful.

 

[Daddy Ireland]

Thanks. I will look into that. What about tax relief on the 15k though ?

 

[LDFerguson]

There is indeed tax relief on the monies used to purchase back service, subject to the same limits as pension contributions. In effect, the €15,000 is treated as a pension contribution by you. If you proceed, you should get a statement from the superannuation scheme confirming that you paid the €15,000, which is usable in the same way as a tax certificate in respect of a private sector pension contribution. If you pay it before mid-November 2018, you can elect to have the tax relief allowed against 2017 tax year, meaning that you might get a tax refund if all your other taxes for 2017 are paid to date. You'd complete a tax return for 2017 or ask an accountant to complete one for you.

 

[Daddy Ireland]

Thanks again Liam. Can the 15k be spilt over 2017 and 2018 in order to maximise the relief at 40%.

 

[Early Riser]

here's a Key Post in this forum about the relative merits of buying back service vs the alternative of investing in AVCs or AVC PRSAs.

Just to note that "buying" back reckonable service is not the same as purchasing notional service, as in the Key Post reference. They are costed differently. Buying back reckonable service (if you have any) is generally cheaper, sometimes very considerably so, and should always be pursued before notional service.

 

[Daddy Ireland]

Thanks Early Riser. Yes I would be buying back reckonable service. Query is not related to purchasing notional service.

I would not be able to get tax relief at 40% on the 15k if this has all to be treated as an additional pension contribution say for 2017. I would be over my age threshold in relation to standard public sector pension contributions when combined with the 15k. Hence, I am wondering if there is any way say half the 15k can be treated in the 2017 year and half in the 2018 tax year, If I was allowed do this I would be able to get 40% on the full 15k as I would be under my age threshold. Is this allowed I wonder ?

 

[Early Riser]

Hence, I am wondering if there is any way say half the 15k can be treated in the 2017 year and half in the 2018 tax year, If I was allowed do this I would be able to get 40% on the full 15k as I would be under my age threshold. Is this allowed I wonder ?

Understood - but I am unable to answer this, sorry. Hopefully someone more familiar with taxation and pension contributions can advise. Or you might try contacting Revenue, who are generally helpful.

 

[Daddy Ireland]

It makes absolute sense to buy back the years. 15k less tax relief entitles me to an annual pension of slightly over 5k instead of 2.5k So 15k less tax relief is a no brainer really and as Early Riser says should always be pursued. Only question I have remaining and perhaps it's one for Revenue is the possible splitting of the 15k between 2017 and 2018 tax years to get the full 40% relief.

 

[Early Riser]

Only question I have remaining and perhaps it's one for Revenue is the possible splitting of the 15k between 2017 and 2018 tax years to get the full 40% relief.

I don't claim to be knowledgeable about taxation relief on lump sum contributions, but this, from Revenue's Tax and Duty Manual, may be relevant to your query:

"Relief for special contributions (or for a contribution not made under the net pay arrangement as
in paragraph 3.3) is given by way of adjustment to the employee's tax credit certificate. If aggregate contributions exceed the annual relief limit, relief will be given on a spread forward basis."

See Paragraph 3.4: "https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-03.pdf

I suggest you contact Revenue to confirm.

 

[Gordon Gekko]

The relief is just carried forward for offset against income for subsequent years.

 

[POC]

As far as I recall, when I bought back service, I was able to arrange to pay it in installments of my choosing, through my salary. So I started to pay it in one calender year and finished the following year.

 

[Daddy Ireland]

I plan to retire later this year on health grounds and so I would not be able to split some of the 15k between this year and next year. Hence, I will check with Revenue about tax relief on part in calender year 2017 and remainder in 2018.