Q&A Dominic Coyle: Reckonable income limits for pensions

Unearned income not relevant for pension contributions


I have a salary and unearned income from dividends (over €3,174) and I have been making regular and AVC contributions into my pension scheme, up to the maximum of 40 per cent (over 60), but last year, I was informed that I could not use my unearned income as part of my allowable/reckonable earnings for pension contributions purposes. Now that unearned income will be subject to PRSI contributions and USC, will Revenue allow me to use my unearned income as reckonable earnings for pension contribution purposes?

Mr N.M., email

Unearned income will certainly be subject to PRSI from the start of next year if it exceeds €3,174 a year – and is also subject to USC (and income tax) apart from bank deposits which are liable only to DIRT.

But nothing in the legislation says that this income will now be eligible for inclusion in reckonable earnings for pension contribution purposes. It wasn’t until now when such income was liable for income tax or DIRT so I see no reason why they would change the rules simply because of the introduction of PRSI – especially as so many people will not breach the PRSI threshold on unearned income.

‘Unearned income’ limits and PRSI

In last week’s Irish Times you said in your reply to a query that anyone earning more than €3,174 a year in unearned income is liable to PRSI. Quick question: is it €3,174 per person – i.e. if the unearned income is in joint names, would the liable threshold be doubled to €6,348?

Mr P.M., email

The threshold for the exemption to paying PRSI on unearned income of €3,174 per annum is an individual threshold. PRSI liability and any benefits accruing under social insurance are individually assessed. The fact that no benefits accrue in this instance does not change the basic individual nature of PRSI.

But, in Revenue speak, an individual is an “assessable person” to whom the income is “chargeable”. That means for anything you own, you as a taxpayer are liable. If you are jointly assessed, you could be liable for the charge both on your own income and that of your spouse and partner. Of course, for items that are jointly owned by two people – each of whom is an assessable person – the threshold would effectively be double.

Is interest on savings bonds ‘unearned’?

In relation to the PRSI of 4 per cent which will kick in once unearned income exceeds the €3,174 limit, could you please clarify the following for me?

1) If unearned income exceeds this limit, am I correct in assuming that the 4 per cent PRSI applies to all of the unearned income and not just the portion that exceeds the exemption limit?

2) Does interest earned on Savings bonds or Saving Certs count towards calculating unearned income towards this limit?

Mr S.C., email

Either your level of unearned income is below the threshold, in which case you pay no PRSI on it when the new regime kicks in in January, or it is above the threshold, in which case all of the unearned income is liable to the 4 per cent charge.

On An Post Savings Certificates and Savings Bonds, these are sold as being tax-free and they do not fall under the Dirt regime. My understanding is that those products are outside the scope of the new PRSI regime on unearned income.

Prepaying property tax

The 2012 Finance Act imposed property tax. However, I haven’t seen if this Act has its legality stress-tested against the Constitution. The recent mess caused by the Revenue with payment for 2014 may have further implications. I’m to finalise the sale of my house this December, but in the Finance Act it states that if I owe property on November 1st, I need to pay for 2014 even though I won’t own it. This should be considered illegal and challenged in court here or even in Strasbourg. Do you know if such case was ever presented to the Government, Revenue or any other serving taxpayers public authority?

Ms L.M. Tipperary

There has been a furore about the issue of people selling houses late in the year and being burdened with the local property tax for the following year but, to my knowledge, there has been no legal challenge to it just yet. The Act states that if you own a property on November 1st, you are liable for the local property for the next year even if you sell it before the start of that year.

The Law Society did raise it as an issue but the Revenue was quick to state that it was well known to the legal profession which chose to say nothing until the deadline issue caused a row last month.

Is it fair? I don’t see how. Should the Revenue be able to operate a system that taxes people only on property they own during a given year? I see no reason why now, especially given all the attachment powers they have in relation to the local property tax. So I expect they’ll make a change. Possibly in the longer term but certainly not in time for you.

This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara St, D2, or to dcoyle@irishtimes.com