Rental income only - what PRSI class applies?
- Thread starter ClubMan
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Thanks a lot @S class.
You don't happen to have a link to the relevant info by any chance?
I'm finding it very difficult to pinpoint the precise info on Welfare, Revenue, Citizen Info etc.
Thanks again.
I don't have a link.
It's treated as self employment income.
If you earn at least 5000 euro you are liable to the minimum Class S contribution of 500 euro for 52 Class S contributions. When you reach 12500 euro per year you pay 4% on all extra income. It's straight forward if as you state the individual has no other income.
In a lot of cases if the individual has other income their rental income will be liable to Class K.
It's treated as self employment income.
If you earn at least 5000 euro you are liable to the minimum Class S contribution of 500 euro for 52 Class S contributions. When you reach 12500 euro per year you pay 4% on all extra income. It's straight forward if as you state the individual has no other income.
In a lot of cases if the individual has other income their rental income will be liable to Class K.
This is a decent starting point, but be careful to read it fully.
www.gov.ie
Operational Guidelines: PRSI for the Self-Employed
An overview of PRSI for the self-employed.
www.gov.ie
My query is explicitly about someone with no income other than rental income.
Other people reads these threads as well as the person who posts the original question. Ravima's post is a worthwhile contribution.
Except a post above it by S Class specifically deals with this already.
Anybody in this situation could benefit from Class S Prsi on their rental income if they also have an ARF. If they are in receipt of ARF drawdowns in any year, then their rental income for that year will be Class S (provided that the combination of ARF + rental income is at least 5000 euro). This is a very good reason for these people to preplan before retirement by making AVCs. A very small ARF would suffice, it would not need to be over 5000 euro per year. This only applies up to age 66.
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Early Riser
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Are you sure about that?
According to Zurich:
"The Department of Social Protection has advised that PRSI Class S should be deducted by Qualifying Fund Managers on ARF withdrawals. That is the same class of PRSI that applies to self employed workers. In theory Class S PRSI applies only where the individual has relevant income of €5,000 more. However as the ARF provider will not know whether the individual has other earnings, they will most likely deduct Class S PRSI @ 4% on any ARF withdrawals made. Therefore those who have relevant income of less than €5,000 but who paid PRSI on their ARF withdrawals could seek a refund of any PRSI paid from their local tax office. We are aware of cases where the Revenue and Department of Social Protection have identified such cases and refunded the PRSI paid whilst also rescinding any PRSI credits which may have been accrued for that individual in the year in question. To ensure that a PRSI record accrues towards the State Pension (contributory) a withdrawal of at least €5,000 in the relevant year would be required.* That €5,000 withdrawal can be taken monthly, quarterly, half yearly or as a single payment. In all cases where the total withdrawal or withdrawals equal €5,000 or more then the individual will accrue 52 Class S PRSI contributions which is essentially a full year’s worth of PRSI contributions."
There is also this letter from the Dept of Social Protection:
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See the conclusion section of the quoted Zurich document as below.....
Conclusion
In conclusion, the potential PRSI record accrued due to ARF withdrawals could be very helpful to an individual in terms of:
• Qualifying for a State Pension
• Boosting the rate of pension for which they qualify.
Although often overlooked this aspect of managing an ARF in retirement should form part of discussions with clients along with
managing how ARF assets are invested, providing an adequate income to maintain lifestyle and avoiding the risk of bombout of
the fund.
*This assumes that the individual has no other relevant income on which Class S PRSI would apply in the relevant year. Where
other income exists and this income is subject to Class S PRSI the total amount when combined with the ARF income would
need to meet the €5,000 threshold.
**This increases to 5% for those 71 and older and 6% regardless of age where total ARF funds are €2,000,000 or higher.
Conclusion
In conclusion, the potential PRSI record accrued due to ARF withdrawals could be very helpful to an individual in terms of:
• Qualifying for a State Pension
• Boosting the rate of pension for which they qualify.
Although often overlooked this aspect of managing an ARF in retirement should form part of discussions with clients along with
managing how ARF assets are invested, providing an adequate income to maintain lifestyle and avoiding the risk of bombout of
the fund.
*This assumes that the individual has no other relevant income on which Class S PRSI would apply in the relevant year. Where
other income exists and this income is subject to Class S PRSI the total amount when combined with the ARF income would
need to meet the €5,000 threshold.
**This increases to 5% for those 71 and older and 6% regardless of age where total ARF funds are €2,000,000 or higher.
Early Riser
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Yes, Class S on an ARF counts towards the State Pension provided the drawdown is at least €5,000 for the year, or the ARF drawdown combined together with self-employed/rental income amounts to at least €5,000.
Sorry if I misunderstood, but I thought you were suggesting that the Class S on an ARF drawdown of less that €5,000 alone would count towards the State Pension. Further, it would seem from this that they have to pay a minimum of €500 for the Class S to count rather than just 4%:
"Minister Humphreys got us confirmation that.
“Any income of more than €5,000 a year will incur the Class S charge. It is not necessary to have the same source for the income – for example a person could have ARF income of €3,000 and income from rents of €2,000 and would therefore be liable for the Class S charge. The minimum annual Class S contribution is €500.”
ARF Withdrawals and your PRSI Record - PPS Financial Planning
Back in November 2018 Deputy Michael McGrath received clarification from the Minister for Employment Affairs and Social Protection (Regina Doherty) as to whether PRSI paid from ARF withdrawals are reckonable for the purposes of the State Pension. Regina advised “Distributions from ARFs fall...
ppsfinancial.ie
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I don't think that the 500 euro minimum is actually applied. I my case I get 52 Class S contributions from an ARF of 7000 euro per year having only paid 4% prsi on the 7000 euro. A pensioner with an ARF of 5000 euro per year would be very irate if they received a bill from Social Protection for the extra 300 euro prsi not collected from their monthly drawdowns at the end of the year. Especially so if they already had their full 40 years of prsi paid contributions.
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Early Riser
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I suspect that this may well be the case. But there is a woeful lack of official clarity from the DSP.
I can confirm the above statement.
Some years ago I phoned the relevant section of the DSP to enquire about bringing my Class S contributions up to the €500 reckonable minimum and was advised - verbally, and strictly off the record - not to bother because the requirement wasn't being enforced!
However, me being a paranoid worrier, I insisted on paying the top-up ...... just in case!
NoRegretsCoyote
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I think this is one reason why they don’t enforce it.
The number of people paying less than €500 Class S PRSI is likely to be small.
The cost of enforcing this may not be worth the administrative cost and they know it’s a complicated rule that most people aren’t aware of.
Right Winger
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Would it not be collected automatically by Revenue when an S class contributor submits a tax return?