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The computation of net relevant earnings for pension determination is made by deducting earned income from the difference between (charges, maintenance, other reliefs such as capital allowances and non relevant income such as rents and interest). The maximum pension contribution is then determined based on the age of individual.
The complexity of the problem arises when the charge is a restricted covenant. The maximum covenant may be restricted to 5% of total income, which in turn is obtained after deducting pension.Therefore we need to know the pension to determine the level of covenant to use to determine pension
that is to say that
we can’t have pension without knowing what the convenat is and we can’t have convenant without knowing what the pension is
is there any rule if such situation arise?I regret that there is no meaning in the statements you have made, within the UK tax system. I suggest you read the course notes and listen to the relevant lectures for chapter 10 to understand what we need to know for our exam.
in the Republic of Ireland the total income tax is gross income less pension and charges such as Covenant. If the covenant is restricted the maximum limit will be 5% of total income before deducting the covenant. The pension will be deducted from gross income before we get the figure of total income to compute the maximum limit for covenant. The maximum pension allowabe for individual every year is a certain percentage of his/her Net Relevant Income. The net relevant income is earned income less charges such as covenant. Therefore pension computation is a function of covenant and covenant computation is a function of pension.
The question is how to determine the maximum covenant allowable per year for indivual that makes pension contribution
to illustrate my question we have this: Gross income xx
less pension ( xx)
Total income xx
maximum covenant allowed 5% Total income xxNow Earned income (Trade, or employment) xx
Charges: covenant xx
Less investment income (xx) (xx)
Net Relevant income xx
Maximum pension allowable 30% Net Relevant income
As you can see to know the the maximum pension contribution allowable covenant is used in the formula and to know the maximum covenant allowable Pension is used in the formula
What can do if such situation arisesNow I understand what the ROI stands for!! I regret however that I have no knowledge of the Irish tax system and am not able to advise you on this subject, If you post your query on the general student forum there may be a fellow Irish student who is able to assist. Good luck and best wishes in your studies!
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