787W Relevant earnings and net relevant earnings

Summary

This section defines relevant earnings and net relevant earnings for the purposes of PEPPs. The amount of tax relief for PEPPs is calculated by reference to net relevant earnings. The section also sets out the treatment of losses etc. in the calculation of relevant earnings and imposes an “earnings limit” (currently €115,000 – see section 790A) on the amount of relevant earnings that qualify for relief for PEPPs in any one year.

Details

(1) Relevant Earnings

“relevant earnings” means either —

• income from employment,
• income from property attached to or forming part of the emoluments of that employment, or
• income from a trade or profession.

but does not include income from an employment with an investment company of which the recipient is a proprietary director or proprietary employee.

(2) The relevant earnings of a person are not to be regarded as that of their spouse or civil partner, even if they are jointly assessed for tax purposes (under section 1017 or 1019). This allows the person to claim relief in their own right in respect of contributions paid to a PEPP which that individual has established.

(3) Deductions for losses and capital allowances are not to be taken into account in arriving at the amount of an individual’s “relevant earnings”. In other words, relevant earnings are earnings before set off of any losses or any capital allowances to which the person may be entitled.

Net relevant earnings

(4) Net relevant earnings are relevant earnings less certain payments, losses and capital allowances to be made from relevant earnings in calculating the individual’s total income for that year, being either—

• payments made by the individual (that is, payments which the individual is entitled to deduct in computing his/her total income (for example, payments such as annuities paid under deduction of tax or maintenance payments to a separated or former spouse or former civil partner)), and
• losses and capital allowances relating to a source of relevant earnings of the individual or the spouse or civil partner of the individual.

It is by reference to this figure that maximum allowable contributions to a PEPP are calculated.

Treatment of losses, etc.

(5) Where the whole or a part of a loss or allowance relating to a source of relevant earnings is, for the purpose of computing liability to income tax for a particular year, set off against income which does not rank as relevant earnings, the amount so set off is to be treated as reducing the individual’s net relevant earnings of subsequent years, being deducted as far as possible from the relevant earnings of the immediately following year, whether or not relief under the section is claimed or allowed for that year, and so on for the following years.

(6) Where an individual has relevant earnings and other income, deductions (that is, in respect of losses or payments) which could otherwise be treated as reducing the relevant earnings or the other income are, so far as possible, to be treated as reducing the relevant earnings in so far as they are deductions in respect of losses sustained in a source of relevant earnings of the individual (or of their spouse or civil partner), and that otherwise they are to be treated as reducing the other income.

(7) Allowances given to the individual or the individual’s spouse in respect of PEPP contributions do not reduce the net relevant earnings.

Limit on relief

(8) For the purposes of the relief, an individual’s net relevant earnings are not to exceed the “earnings limit” (currently set at €115,000 – see section 790A).

Relevant Date: Finance Act 2024