PRSA Tax Rules 2025 – Case Study

James a Company Director with a €60K per annum salary, wants to put a €100K into his PRSA pension as a contribution for 2025.

This is a complex area, and the rules around pension contributions for company directors in Ireland have recently changed. Here’s a breakdown of what happens if you, as a company director, contribute €100,000 to your PRSA pension when your salary is only €60,000.

Key Changes to PRSA Contributions for Company Directors

Prior to Jan 2025, a significant advantage of PRSAs for company directors was that employer contributions were not restricted by salary. The only real limit was the Standard Fund Threshold (SFT) of €2 million.

However, the new rules in Ireland have brought about a significant change:

• Employer contributions to a PRSA are now capped at 100% of the employee’s or director’s salary.
• Any contribution made by the company above this limit will be treated as a Benefit in Kind (BIK) for the director.

What Happens in James situation?

Based on his scenario, he wants to contribute €100,000 into his PRSA, and his annual salary is €60,000 per annum.

1. Tax-Deductible Contribution for the Company: The company will be able to claim a tax deduction on the pension contribution, but only up to the new limit of 100% of James salary. This means the company can claim a tax deduction on €60,000 of the €100,000 contribution. The remaining €40,000 will not be a tax-deductible expense for the company.
2. Benefit in Kind (BIK) for James: The excess contribution of €40,000 (the €100,000 contributed minus the €60,000 salary) will be treated as a Benefit in Kind (BIK) for James, the director. This means this amount will be added to his income and taxed at the marginal rate of income tax, plus Universal Social Charge (USC) and Pay Related Social Insurance (PRSI), if applicable. This will result in an increased personal tax bill for James
3. No Tax Relief on the Excess: While the full €100,000 goes into his pension fund and benefits from tax-free growth, he will not receive personal tax relief on the €40,000 portion that is treated as a BIK. The personal tax relief on employee contributions is based on age-related percentages of his salary, which is a separate calculation.

Breakdown of the Tax Implications for James

Other Important Considerations

• Standard Fund Threshold (SFT): The overall amount in your pension fund is still limited by the SFT. The SFT is currently €2 million, but it is set to increase to €2.8 million by 2029. If your pension fund exceeds this limit at retirement, the excess is subject to a tax charge.
• Employee Contributions: It’s important to distinguish between employer and employee contributions. As a director, you can also make your own personal contributions to your PRSA. These are subject to their own age-related limits, which are separate from the new 100% salary cap for employer contributions.
• Alternative Pension Structures: The new rules for PRSAs have prompted some company directors to consider alternative pension structures, such as Executive Pension Plans within a Master Trust, as their contribution limits are based on different calculations (salary, service, and age). An executive pension may be able to accept a larger lump sum contribution in a tax-efficient manner, particularly if it’s a “special contribution” to make up for past service. However, these plans have their own complexities and are generally less portable than a PRSA.

Given the significant tax implications, it is highly recommended that you consult with a qualified pension advisor to assess your specific situation and determine the most tax-efficient way to fund your retirement.

The good news we have a solution to this problem.

You can email on info@guardianwealth.ie or call me on 01 5267770.