My current HSE gross salary is €100k and my business gross income is €10k. So €110k gross. Does this mean I can put €2.5k from the business gross income into a “PRSA AVC”
Assuming you want to maximise your scope for tax relief on pension contributions, in calculating the contribution you can make to the
PRSA AVC and receive tax relief thereon, follow these steps:
1. Ascertain
employment income: €100,000. €110k is irrelevant.
2. Ascertain tax relief % for age: 25%
3. Calculate scope for tax relief on
employment income: €25,000 (€100,000 x 25%).
4. Take account of what contributions you have
already made to the Single Scheme: let's say €5,400 approx on a €100k salary. Ignore ASC.
5. Scope for contribution to PRSA AVC = €19,600 (€25,000 - €5,400).
You can see here in reckoning up what you can contribute to a PRSA AVC, we are working off income from
employment only.
Now, how you actually
fund that €19,600 payment to the PRSA AVC provider from a cashflow perspective, is your business.
If you had, say, €5k sitting in your sole trader bank account and only had €14,600 in your current account, the €19,600 in theory can come from anywhere.
At this point in the game you have contributed €5,400 in employee contributions (where you will have received tax relief through payroll) to the Single Scheme and have paid €19,600 to a PRSA AVC.
Total pension contributions at this point are: €25,000.
At this point, no further contributions are made to your PRSA AVC.
I guess you
could pay more into your PRSA AVC (which is I think what you getting at - work off a total income of €110k), but you would have to carry forward tax relief to the following year as
tax relief on a
PRSA AVC contribution will only be granted based on your
income from employment. See
here.
Revenue have your employment figure so will only allow tax relief on a contribution of €19,600 as you'll already have received tax relief on the €5,400 Single Scheme contributions.
If you say to yourself that you have income from both sources of €110k and will pay €19,600 + €2,500 into your PRSA AVC and claim tax relief on €22,100, you will only be entitled to receive tax relief on €19,600 for the tax year in question and will have to set €2,500 as a contribution against the employment income in the following year.
What you want to do at this point is:
6. Open a standalone PRSA and contribute €2,500 to that pension product, and claim the tax relief on that.
At this point you have contributed:
- €5,400 employee contributions
- €19,600 PRSA AVC
- €2,500 PRSA
Total €27,500 = (25% x €110k)
So, as I say, if you are looking to maximise your tax relief and have the means to contribute €27,500, you follow the above approach.
What
@Dave Vanian is highlighting/implying is that if your total income is less than the earnings limit of €115k, if all you have is the means to contribute, let's say €2.5k for the sake of example, to a pension (exclusive of the €5,400 you have already contributed in employee contributions to the Single Scheme), you can put the €2.5k into a PRSA AVC and get tax relief (as you have scope to put in up to €19,600),
OR you could put the €2.5k into a standalone PRSA and likewise get tax relief on that. If all you had was the means to contribute €5k, you could put it all in the PRSA AVC, or put €2.5k into a PRSA (which you are limited to i.e. 25% x €10k) and the balance into the PRSA AVC.
Restrictions around tax relievable pension contributions and the
particular pension product (AVC Scheme, PRSA AVC, PRSA, Personal Pension) only apply where Total Income exceeds the Earnings Limit of €115k. I had implied in my previous post that it could apply for total incomes below €115k. As I mentioned previously, the examples in Revenue Pensions Manual Chapter 26, illustrate how the restriction works.