Taxation of Pensions
In general, income arising from both occupational and state pensions in Ireland is subject to
taxation. However, many pensioners do not have to pay tax because their income is below
the following exemption limits.
Single/Widowed 65 years of age or over
Married 65 years of age or over
2011
€18,000
€36,000
2012
€18,000
€36,000
A number of possible situations arise as follows:1. People in Receipt of State Pension Only
If you are only in receipt of a social welfare pension (or another social welfare
payment) you are likely to be exempt from income tax provided your total income is
below the exemption limits detailed above.
2. People in Receipt of an Occupational Pension Only
Occupational pensions are subject to tax under the PAYE ('Pay-As-You-Earn') system,
so the process is the same as that which applied when you were being paid your
salary. In this case your tax liability will usually be covered by the amount deducted
under the PAYE system. In some cases a refund could arise where additional credits
or reliefs can be claimed (e.g. medical expenses). If you think a refund may arise then
you should complete a tax return.
3. People in Receipt of both a State and Occupational Pension with no other Income (
Non Self Assessment )
If you are in receipt of a social welfare payment and an occupational pension you
may have to pay tax. In this case, your State and Occupational Pensions are added
together. You are taxed on the total amount.
There is no mechanism for taxing State pensions at source (before it is paid to you).
If you are in receipt of an occupational pension then in order to tax your social
welfare pension, Revenue will amend your tax credit certificate by reducing the
standard rate cut off point by the amount of the social welfare pension, and your
annual tax credits are reduced by the tax liability on your State pension. You then
effectively pay tax on both the pensions, but it is collected from the occupational
pension. This is the mechanism detailed by Revenue in their recent letter.
People whose only income consists of an Occupational and a State pension are not
considered self assessment taxpayers and do not have an obligation to file an annual
tax return. It is possible that tax could be deducted from the occupational pension
where a persons total income is less than income exemption limit. This tax can be
reclaimed by filing a tax return.
4. People in Receipt of both a State and Occupational Pension with Other Income
(Self Assessment Taxpayers)
Generally people with other income are considered self assessment taxpayers and
have an obligation to file an annual tax return
Are you a self assessment taxpayer?
You will be considered a self assessment taxpayer if any of the following circumstances
arises:
You receive income of any kind where some or all of the tax cannot be collected
under the PAYE system e.g. you receive rental income, investment income etc.
You have a foreign bank account.
You have or acquire an interest in an offshore fund or life policy.
You are a company director controlling more than 15% of a company.
Self-employed individuals.
If you are regarded as a self assessment taxpayer you must:
Pay Preliminary Tax for the current tax year on or before the 31 October each year,
File your Tax Return for the previous tax year on or before 31 October.
Pay any balance of tax due for the previous tax year on or before 31 October.
With effect from 1 June 2011 all self assessment income tax returns must be filed
electronically using the Revenue’s system Revenue on-line Service (“ROS”).
People who are self assessed taxpayers usually paid tax on their State pension and any other
income in a lump sum on the 31st October each year. From 2012 onwards additional tax will
be deducted from occupational pensions resulting in a reduced annual payment in October.
People who pay their Income Tax by Direct Debit should recalculate their monthly payment.
Income Tax Refunds
If you are aged 65 or over and live in Ireland, you are liable to pay income tax in the normal
way. However, the tax exemption limits apply and you may be entitled to additional tax
credits. It is important to ensure that you are claiming all the tax credits that you are
entitled to.
A person is exempt from income tax where their total income is below the income
exemption limits outlined above. Marginal relief may also apply where total income is less
than twice the exemption limit.
If you are entitled to exemption from income tax but have actually paid tax or received
income from which tax was deducted (e.g. salary, pension, deposit interest, Irish dividends,
income under a covenant, etc.) you may be entitled to a refund. Claims for refund must be
made within a 4 year time limit.
Other Income Tax Reliefs
Other income tax reliefs which may be of interest include the following:
Relief for Health/Medical expenses.
Non routine dental expenses.
Allowance for payment to home care providers.
Age Credit.
Tax relief for covenants to people aged 65 and over.
A higher tax credit in respect of rent paid for private rented accommodation.
Widowed Tax Credit.
One parent family credit.
Dependent relative credit.
Third level tuition fees.
Service Charges.
Donations to charities and other approved bodies.
What Next?
Please call Tony Kirwan or Helena Burke directly on 01 2842544 or email us at [email protected].
We would be delighted to talk to you. We provide a full tax advisory service and can prepare
annual tax returns on your behalf.
Further information on Gannon Kirwan Somerville can be found on our website at
www.gks.ie.