Tax on Notional Service Purchase

[dino]

Hi,
I'm on a DB pension with a Semi-State. At 60 I will be 6 years short of full service (34 years service).
I got a quote of €160k to buy 6 years notional service or €2500 per month over 6 years.
I pay the high rate tax.
How will this be treated for tax? Will it be similar to paying into an AVC if I pay monthly? i.e. it costs roughly €1500 after tax relief?
If I was to pay a lump sum, how would that be treated?
Thanks

 

[Early Riser]

Tax relief is provided in the same way as for AVCs. Also the same age limits apply (https://www.revenue.ie/en/jobs-and-pensions/pensions/tax-relief-for-pension-contributions.aspx).
So if you are aged 54 now the maximum you can contribute for tax relief purposes is 30% of earnings in your employment. For a monthly payment of €2,500 (€30,000 annuallly) you would need to be earning €100,000 annually. At 55 the limit increases to 35%.
The tax relief is applied at source at your marginal rate (subject to the above limits). Provided you are paying top rate tax on the amount of your contribution annually (eg, at least €30,000 @ 40% in your example) you gross salary deduction will be reduced by 40%.

On lump sums the tax relief is applied up to the age contribution limits in the year of the contribution, and you can also elect to apply it to the previous year. Any outstanding unclaimed amounts are carried forward for relief to subsequent years. See 3.4 here https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-03.pdf

 

[LDFerguson]

The limits for tax relief (25% in your 40s, 30% in your early 50s and so on) include any personal contribution you're already making to the DB scheme. So for example if you're in your early 50s and are already paying a 6% contribution then your scope for tax relief is therefore 24% of salary.

For this purpose, the maximum salary used in calculations is €115,000. If your actual salary is greater than this, use €115,000 in your calculations of percentages.