Employee Pensions
As an employee, depending on the type and size of company that you work for, there may be a company pension scheme, which you can opt to get involved in. If your employer does not provide one you can set up your own pension fund.
Company Owners and Self-employed
As a company owner, you can also elect your own pension fund and you will be able to factor in the monthly payments as a deduction when calculating your preliminary tax payment on account.
For the self-employed if they make their pension contribution prior to the income tax deadline, they will pay less tax immediately as the contribution should reduce both their final liability for the year and their preliminary bill for the following year.
For companies and self-employed, the 31st October 2017 is an important date for Income Tax returns (mid November if filing & paying returns over ROS) as this is the final date for making a pension contribution and opting to backdate the tax relief to the previous year i.e. 2016
Retirement


When preparing for retirement, in order to ensure you have the desired retirement income it’s a good idea to maximise pension contributions. You can do this whilst also minimising your tax bills. Here’s how it works -


The highest tax many people pay is tax on their income which, combined with PRSI and the Universal Social Charge (USC), can exceed 50% of marginal income. As pension contributions benefit from relief on income tax at your highest rate, pensions are a legitimate way of cutting this tax bill. Additionally, any growth achieved by the pension fund is exempt from capital gains tax and DIRT.


Similarly, when pension benefits are drawn down, tax, PRSI and the USC will be payable at the rates applicable at that time. However in retirement many people will find themselves in a lower tax bracket and so will pay less tax.



For those who are still higher-rate taxpayers in retirement, it may be possible to avoid the full impact of higher-rate tax. One option for lowering the tax payable is preserving pension money in an Approved Retirement Fund or Approved Minimum Retirement Fund.


Here are some examples to illustrate the points set out above:

EXAMPLE 1: Jim is 42 and earns €50,000 per annum from employment. His maximum individual pension contribution is 25% of €50,000 – or €12,500. Jim’s marginal rates of tax will depend on his personal circumstances, but a total marginal rate of 40% would be normal for someone on this level of income. Due to tax relief, making the €12,500 contribution to his pension will cost Jim a reduction of only €7,000 in his take home pay.



EXAMPLE 2: Mary is 60 and earns €300,000 per annum. Because Mary is wealthy retirement income is not a concern for her, but she does want to minimise her tax bill. Her maximum contribution is however limited to €46,000 i.e. 40% of the maximum net relevant earnings figure of €115,000.
As with any financial decisions, it’s a good idea to seek independent professional advice in this area before committing yourself in any way. I’d be delighted to talk to you about any questions you may have about tax efficiency and pensions. Simply contact me on Leanne.murphy@jacksonconsulting.ie

An executive retirement plan build up a fund which allows the company to provide retirement benefits for directors and key employees.
If you are a Co-Director you can provide greater pension funding through your company using this method than if you were self employed
 
The benefits are:

• Contributions can be offset against corporation tax
• No BIK implications
• Tax free cash at retirements – greater than if self employed
• Possibility of early retirement
• Valued staff (not just directors) can be included
• Valued staff can be encouraged to join company
• Company can make much larger contributions that an individual can

 
The extent of pension tax relief available is so significant that in most cases it is more beneficial pay funds into a pension that increase salary or give bonus.  The amount can be substantial. The below chart shows the revenue approved limits.
Revenue approved limits for individual’s vs Revenue approved limits to Directors

But the key benefit is this – if you are a company director with no pension provision in place your company can start funding late for your retirement, by making a company contribution in certain cases to your pension up to nearly 4 times their salary.
Future Funding Options to target Revenue Maximum Limits:
e.g. A 51 year old female with no pension provision in place earning a salary of €120K can pay €254K pa into her pension. Or if company funds allow make a single contribution of €1.280M and then pay €111K pa until retirement.
At retirement
Company directors can ensure they maximise their tax free lump sum by – if they have 20 years’ service they can avail of tax free lump sum of 1.5 * final remuneration.
In the example above the lady can obtain 1.5*120K lump sum tax free – therefore 180K tax free – if she wants to reach the max threshold of €200k tax free she only needs to increase her remuneration in the last 3 years before retirement.
If pension planning takes place now the above can be obtained.

Firstly, the basics. The standard taxes due in Ireland include the PAYE (Pay as you earn), PRSI (pay-related social insurance) and USC (Universal social charge). An employee in Ireland is taxed on his/her salary, fees, wages, commissions and bonus, as well as any benefits from the employment. In other words, payments in cash form and non-cash benefits provided by the employer are taxable on the employee.
The criteria used to determine an individual’s liability to Irish tax are: their residence, ordinary residence and domicile status. It’s important to note that the Irish income tax year is aligned with the calendar year.
PRSI is Ireland’s equivalent of social security. The PRSI goes into a social insurance fund for social welfare payments and pension benefits. Currently you need to have paid 520 Class A PRSI contributions to apply for a pension. Therefore as the majority of those on secondment from abroad will not stay in Ireland for 10 years it is worthwhile for these employees to consider keeping their own national social security.
Tax–relief and exemptions in relocating to Ireland
There are a number of tax-relieving provisions available to employees coming to work in Ireland.
Firstly, the duration of residency in Ireland and work done outside of the country can all affect the tax implications for an employee. In other words, an individual, who can show that they intend to remain resident in the following tax year, is not taxable on earnings from an employment exercised outside Ireland in the part of the year before their date of arrival even if they are resident for the full tax year.


Other expenses and costs involved in relocation, which can be offset against tax include:
* Relocation expenses such as shipping, storage costs and costs associated with the purchase of a new home (e.g. stamp duty, solicitors’ fees) can be reimbursed tax-free
* Accommodation and subsistence costs for the first 12 months of an assignment, that is expected to last less than 24 months, can be paid or reimbursed tax-free
* Employer contributions to Revenue-approved occupational pension schemes. This exemption can be extended to foreign employer pension schemes in certain circumstances. Employee contributions to such schemes are deductible for income tax purposes, subject to certain income and age
related limits. There is no deduction for PRSI and the Universal Social Charge
* It is possible to obtain Revenue approval in respect of certain share schemes, e.g. Approved Profit Sharing Schemes and SAYE Share Option Schemes, which can result in tax savings for employees. All such share schemes are exempt from income tax but are subject to PRSI and the Universal Social Charge.
* SARP (Special Assignee Relief Programme) -there is currently a tax-saving opportunity, which applies to non-Irish domiciled individuals, or Irish domiciled individuals who have not been resident in Ireland for the previous five years. There are a number of conditions to be met, including that the individual must have worked for the group 6 months prior to arriving in Ireland. This relief operates by reducing the taxable employment income by an amount calculated as follows: (A – B) x 30% where: A is total remuneration subject to a cap of €500,000 and B is €75,000. SARP relief is available for a maximum of 5 consecutive tax years.
* Furthermore, employees who qualify for SARP can also recover the cost of one return trip for their family to their home country from their employer tax-free and can also have school fees (of up to €5,000 for each child) paid by the employer tax-free.
For more information on this and any other tax or pension issues, please get in touch today.