Thousands of pensioners across the country were shocked and distressed last month to receive letters from Revenue advising them of changes to the tax they pay on private and occupational pensions. The issue has also created a huge furore in the media. Cathal McLaughlin, partner at McLaughlin McGonigle Accountants, Buncrana, explains the situation.
Who is affected? If you receive a Department of Social Protection (DSP) pension and you also have other income, for example a private pension, a salary or rental income, then you could be liable to pay additional income tax.
DSP pensions include the State pension, transition pension (paid between ages 65 and 66), widow’s/widower’s/surviving civil partner’s and invalidity pensions. If the only income you receive is one of the above pensions paid by the State then you will not have an income tax liability.
If you are over 65 and are single you can have a total income of up to €18,000 per annum before a potential income tax liability will arise. This figure rises to €36,000 for the joint income of a married couple.
Therefore, if you are a single person in receipt of a weekly pension of €230.30 (€11,975.60 per annum – current State pension) you could have additional other income of €115.85 (€6,024.40 per annum) before any income tax would become payable.
However if your income exceeds the above limits then you potentially have an additional income tax liability.
How will the tax be collected?
Revenue plan to collect the additional taxes by reducing your annual PAYE tax credits and your standard cut-off bands. Where applicable, this means the additional income tax will be deducted at source by your private pension provider or employer from your non DSP income.
The effect could be substantial in some cases, with the worst possible scenario being some or all of your State pension could be taxed at the rate of 41%. The 41% rate will only arise where a single person has income of at least €32,800 per annum. In the case of a married couple with a single income this amount increases to €41,800.
Why the confusion?
The manner in which pensioners were informed of these changes has been well documented. Large numbers of pensioners who do not have a liability received letters causing unnecessary distress, as witnessed by the huge volume of queries to Revenue and tax advisors.
There would also appear to be some issues with Revenue records, – as a result that some annual PAYE tax credits and rate bands may have been incorrectly reduced in cases where they may have been exempt. It is important to review your notification of tax credits to ensure that they are correct.
If you have any concerns or queries it is important to contact Revenue or a tax advisor to clarify your position. In cases where you believe you have been charged too much tax on your private pension/salary, it may be advisable to file an Income Tax Return in order to receive a tax refund.
For more information contact McLaughlin McGonigle, St Helens, St Oran’s Road Buncrana, Co. Donegal. Tel +353 (0)74 9321420 / Fax +353 (0)74 9321421or email: firstname.lastname@example.org