Since last year I have been in receipt of a UK pension based on working there for a number of years and, following your advice, sought to make additional contributions, with a very positive outcome.
My current pension of £90 per week will increase to £200 per week in the near future following payment of additional contributions from 2006 to 2024 at a cost of £3,700.
In simple terms this is an excellent investment with pay back in less than nine months.
The other beneficiary is the Revenue Commissioners, as I will obviously declare this additional income which will be subject to the higher tax rate.
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My query is whether there are any tax allowances/credits available in Ireland on the amount paid to purchase the additional national insurance contributions in the UK? If I had made an AVC of this amount while employed here I would have been entitled to tax relief.
Mr DF
Your experience is precisely why I was so vocal earlier in the year in encouraging anyone who had worked in the UK at any point to actively check if they could enhance what they were due from the UK in terms of pension.
Traditionally, you have been entitled to make voluntary national insurance payments going back six years. However, due to a change in the UK state pension system, an opportunity arose for people to buy back up 17 years of national insurance covers.
For those who had only worked for a short while in the UK, it allowed them to accrue the minimum 10-year period of national insurance cover required to qualify for a reduced UK pension. For others, like you, who were already across that threshold, it enabled them to get closer to the 35 years of cover that qualifies in the UK for a full state pension.
It was always a no-brainer. The biggest impediment in Ireland was that so few people had heard about it. So we made a bit of a fuss to try to bring it to the attention of those hundreds of thousands of people in the Republic who had worked at one time or another in the UK – some of them decades previously.
Then there was the population north of the Border who were obviously also eligible.
And, as you note, the money involved is not to be sneezed at. The full “new” UK state pension is payable at a rate of £230.25 this year. That translates to €260.45, or more than €13,500 a year. Even at the lower end, for those who barely scrape across the 10-year threshold, the payment is worth just shy of €75 a week.
The cost? For people no longer working, the bill for each year being bought back was around €1,028; if you were still working, the bill was an astonishingly low €203 for every year acquired.
As you have discovered, you can recover the cost incurred in a matter of months.
Like all good things, this deal is no longer available, with the door closing on April 5th last. The UK department of work and pensions is still processing thousands of the applications made but some people, like yourself, are already enjoying the benefits.
But while your eye for a bargain has delivered handsome returns in terms of your weekly pension, I think you might be over-reaching in hunting for some tax benefit on the money it cost you, even allowing for the fact that, as you say, Ireland’s Revenue will benefit on the back of your good fortune through the extra income tax and USC it will levy on your enlarged weekly pension.
[ Should I be paying tax in the UK on a pension if I live in Ireland?Opens in new window ]
You’re not alone in your thinking. Yours is just one of many letters I have received from people wondering whether they can get relief on the cost of buying back that UK pension cover.
You’re right, of course, that you would be entitled to tax relief if you had invested in additional voluntary contributions to a private pension fund during your working life in the Republic. But that’s a private pension.
A more accurate correlation here is the money you pay in PRSI, the Irish version of national insurance. And of course, no tax relief is available on that. It is simply a payment into the Social Insurance Fund from which anyone can claim certain State benefits such as the State pension or jobseeker’s benefit if they meet qualifying criteria.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
