Self-Employed – Pensions & Tax Relief
If you are self-employed you are probably looking at ways to reduce your tax. One way to do this is to contribute to a pension. You can claim back either 20% if you are on the Standard Rate Tax Band or 40% tax if you are on the Higher Rate Tax Band on the premiums. There are limits on the tax relief which depends on your age and earnings. There is also a cap on the salary you can claim your tax relief on. You also are planning for your retirement by paying into a pension. The benefits in a pension also grow tax free. You can also make a pension contribution in a year in respect of your earnings from the previous year. The contribution has to be made by 31st October or the online cut-off date (usually the 2nd week in November) in doing your tax returns online.
Age-Related Percentage Limit:
Tax relief can be received on pension contributions within age related limits shown on the table below:
| Age | Percentage of Earnings |
| Under 30 | 15% |
| 30 to 39 | 20% |
| 40 to 49 | 25% |
| 50 to 54 | 30% |
| 55 to 59 | 35% |
| 60 and over | 40% |
Source: Revenue.ie
Cap on Salary:
Tax relief is limited to the current rate of €115,000.00 which was set in 2011. For example an individual aged 38 has earnings of €200,000.00 the maximum pension contribution they can pay and receive income tax relief on is €23,000.00 (20% of €115,000.00).
Source: Revenue.ie
Example:
Eimear is a self-employed florist. She is 44 and has earnings of €50,000.00 for the previous year. Eimear can make a pension contribution of €12,500.00 (25% X €50,000.00) by 31st October of this year for last year’s earnings. She can claim tax relief of €5,000.00 (40% X €12,500.00) as she is on the Higher Rate Tax Band.
Marcus is a Certified Financial Planner® (CFP) and Qualified Financial Advisor (QFA) with over 10 years’ experience in Financial Services.
MB Planning Ltd. T/A Clear Financial is regulated by the Central Bank of Ireland.
