PRSA while unemployed - is any tax relief possible?

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Is it possible for an unemployed person to get tax relief on contributions to a PRSA? I know a PRSA can be funded and the contributions carried forward for tax relief later, but is there an opportunity to claim tax relief on contributions of 1,525 per annum, or do you have to have earned income of at least that amount to claim relief?

And if it is possible, how does it work on a practical level?

Summary circumstances are my wife is a homemaker, and doesn't have any earned income. She has a small amount of dividend income, but only a few hundred per year.

From Revenue pensions manual:
"An individual who is not in pensionable employment is entitled to relief on contributions up to €1,525 even if the contribution exceeds the relevant age percentage limit (section 787E(4) TCA). This does not apply in the case of contributions to a PRSA for AVC purposes."
 
Detailed analysis here includes the practical treatment of tax relief for the de-minimus contribution

globalwealth.ie

I Don't Believe in Pensions - Everlake

Why we should continue to believe in pensions and start paying contributions to a pension as soon as we can.
globalwealth.ie globalwealth.ie

also by way of additional information, if you have substantial passive income in the form of dividends or rent but only modest net relevant earnings, the tax relief on the pension contribution has the effect of moving up your tax bands effectively still offering higher rate tax relief in circumstances where total income is high but earned income is low

You should also consider putting personal investments into her sole name as she has her own USC bands independent of you and if she earns €5000pa in dividend income she will trigger class S PRSI which counts for contributory state pension credits

see analysis here

https://globalwealth.ie/news-and-views/should-i-invest-in-a-fund-subject-to-exit-tax
 
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Thanks @Marc

Reading your blog post, I think that's where I might have got this idea before.

I'm overthinking this, or I've misunderstood something along the way. My own fault for deciding to look at this over the holidays!

The bit that I'm struggling with is this: "The effect of this is that immediate income tax relief is available to everyone on €1525pa even if they have little or no relevant earnings"

When I match up with section 787 (6) of the TCA:
"(6) Where relief is to be given under this section in respect of any qualifying premium paid by an individual, the amount of that premium shall, subject to this section, be deducted from or set off against the individual's relevant earnings for the year of assessment in which the premium is paid."

I can understand if my wife had relevant earnings of 1525, and put it all into a PRSA how she could get relief. But where there are zero relevant earnings, how is relief available / provided?


Point noted re putting investments into her name. It's been slightly complicated by the fact that I've material capital losses carried forward, so there tends to be a split between dividend paying stocks in her name, and others in mine, but it hasn't worked out that neatly yet! We've a few years left to run on the homemaker scheme for credits for state pension, but would be planning to have passive income in excess of 5k within a few years.
 
My understanding is it works like this

lets say she pays €1000 and has an age related earnings percentage of say 20%

intuitively you would assume that she would be entitled to 20% of €1000 or €200 in tax relief. If she has no net relevant earnings in the tax year paid, this is carried forward to a year where she has net relevant earnings.

the effect of the €1525 is to allow 20% of €1525 or €305 in tax relief on the €1000 paid or relief at an effective marginal rate of 30%. Not bad for a non taxpayer!

this is key to my argument in another thread (18 year old making a pension contribution or not)

if you have an age related allowance of 15% and pay say, €500 into a pension you obtain tax relief of 15% of €1525 €228.75 which represents an effective rate of tax relief of 45.75%
 
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Thanks again @Marc

That makes sense that it would be available to carry forward.

The big question for me is whether or not she'll have relevant earnings in the future.

I'd happily put 100k into a PRSA now if there was going to be relief available against future relevant earnings, but I'm not sure if it would make sense if she doesn't return to work.
 
Marc said:
the effect of the €1525 is to allow 20% of €1525 or €305 in tax relief on the €1000 paid or relief at an effective marginal rate of 30%. Not bad for a non taxpayer!

this is key to my argument in another thread (18 year old making a pension contribution or not)

if you have an age related allowance of 15% and pay say, €500 into a pension you obtain tax relief of 15% of €1525 €228.75 which represents an effective rate of tax relief of 45.75%
Click to expand...

Is this correct? By that calculation, the tax relief is independent of the contribution so you could get tax relief of €228.75 whether you contribute €5, €50 or €500. What am I missing?
 
_OkGo_ said:
Is this correct? By that calculation, the tax relief is independent of the contribution so you could get tax relief of €228.75 whether you contribute €5, €50 or €500. What am I missing?
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No, that bit is incorrect. You only get relief on what you contribute; the wording only has effect on the maximum allowable contribution. You can obviously only get relief on what you actually contribute.

Section 787E(4) TCA
"Notwithstanding subsection (1), where the maximum allowable contribution would but for this subsection be less than €1,525, subsection (1) shall apply as if the said maximum allowable contribution were €1,525. "

From what I've looked into, say in an extreme situation my wife had 1,525 in earned income, she could put 100% of it into a PRSA and get tax relief (it's far more complicated of course as she also has her PAYE Tax credit to utilise).

I had originally misunderstood it from something I had read previously (possibly a previous thread here), but it's turned out to be a bit of a red herring in my circumstances.
 
Marc said:
if she earns €5000pa in dividend income she will trigger class S PRSI which counts for contributory state pension credits
Click to expand...

Are you sure this is correct? I thought dividend income in this case would mean class K contributions for which there are no benefits?
 
llgon said:
Are you sure this is correct? I thought dividend income in this case would mean class K contributions for which there are no benefits?
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Hi, if you have a mixture of earned and unearned income, the unearned income is subject to Class K PRSI. However, where your income is all unearned, and over 5k, it's subject to Class S.
 
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