Pay Dividend/Rental income into Pension to reduce tax

like2know

Hi All,

Looking for your thoughts on my plans for income to bridge the gap between retiring a few years early and my pension kicking in, I will of course discuss this with my accountant and a QFA before I make any changes but I just looking for different point of view before I discuss it with them.

Currently working full time with a DB pension provided by employer, should have sufficient time served to give an OK'ish pension when I reach retirement age.

I have a rental property that I receive an annual rent of 15000 euro, there is still a mortgage but this will be fully payed in the next few years and before I retire.

The tax that I pay on this rental income each year is high as I'm on the high rate of tax and there are minimal expenses with the property. If I was to pay this income into a Non-standard PRSA would this have the effect of cancelling out my tax liability, the property is not owned through the pension but the income from it goes directly into the PRSA. I know there are tax advantages to owning the property through a pension but then I can't access any of the income until I reach retirement, if I keep the property separate then when I do decide to reduce my hours at work and my pay drops below the high tax band I could supplement my income with the rent until the pension kicks in.

In addition to this I look to invest a portion of current income monthly, my first thoughts were to invest in growth stocks as opposed to dividend stocks due to the advantages of CGT over income tax but could I follow a similar strategy with dividend income as for the rental income, there would be some differences with dividend withholding tax etc. but similar principal of paying the dividend into the PRSA until I need to use the dividend as income.

The other advantage that I see with this is the tax that I'm currently paying each year would be re-directed to my pension where it could grow tax free until I retire.

Do you think this process could work or is it an over complicated bonkers idea.

The J Stands for Jay

Rents profits don't attract tax relief when invested in a pension. Same with dividends.

Pawwed Rig

https://www.boards.ie/discussion/comment/117790633#Comment_117790633

May be so but the money might be able to be used to do a top up on his normal employment pension to the relevant %age of the NRE so the result could be the same whereby he would reduce his tax bill on the form 11

like2know

OK, so what you're saying is by paying the rent and dividend income into a pension I'm not entitled to tax relief on this money directly but that I could receive relief to the same value on income from my employer (to my relevant age limit) which would have the same net effect.

SureYWouldntYa

You’re allowed to get relief up to a maximum percentage of your PAYE income

Eg in your 30s its 20%, so for a salary of €40k you can get relief for pension contributions up to €8k, it doesnt matter where you get the money, if your €15k of rental income helps with that then well and good but you’ll still have €15k of reckonable income from your rental property and whatever tax implications that ends up having

Mrs OBumble

https://www.boards.ie/discussion/comment/117794989#Comment_117794989

I understood its a %-age of your earned income, so PAYE or self employment income counts.

But unearned income like rent doesn't.

SureYWouldntYa

https://www.boards.ie/discussion/comment/117797098#Comment_117797098

Yep that would be correct, only from earned income ie Trade/Professional/PAYE

Not allowable against Dividend, Deposit, Rental or any other income really

Coldfish79

I have just asked my tax advisor, who only completes landlord tax returns and she has said that if I only had rental income then I could not get tax relief on pension payments against this income, but as I also have employment income too, I'll get the pension tax relief against my salary instead so it does have the same net effect overall...

Geuze

Correct.

Money is fungible.