Professional Sportspeople and Pensions

Professional Sportspeople and Pensions

Professional sportspeople may a have relatively short working life (as sportspeople) but with high earnings. The pensions system recognizes the special characteristics of such individuals.

Taxable earnings

Professional sports people resident in the State will likely be taxable on their sport’s earnings either under Schedule D (as a profession) or Schedule E (as an employee), depending on whether they are self-employed or direct employees of a sports body. Either way their earnings are relative earnings for pension purposes and hence can be ‘pensioned’ either with an RAC (personal pension plan) or PRSA, or through an employer sponsored scheme.

Personal tax relief on pension contributions

Where personal contributions are made to an RAC or PRSA by certain professional sportspeople the scale of tax relief limits on contributions (limited to a max net relevant earnings to €115,000) is increased over the normal limit at ages under 50:

Age attained in year Normal pension tax relief limit, as % of earnings (max €115k) Special pension tax relief limit, as % of earnings (max €115k), for professional sportspeople
Under 30 15% 30%
31 to 39 20% 30%
40 to 49 25% 30%
50 to 54 30%  
55 to 59 35%  
60+ 40%

Therefore, professional sports people under 50 can get more tax relief (30% of net relevant earnings) than normal.

The professional sportspeople recognised in legislation as qualifying for the increased 30% tax relief limit under age 50 are the following whose relevant earnings for the year are derived ‘wholly or mainly’ from any of the following occupations:

• Athlete
• Badminton Player
• Boxer
• Cricketer
• Cyclist
• Footballer
• Golfer
• Jockey
• Motor Racing Driver
• Rugby Player
• Squash Player
• Swimmer
• Tennis Player

Where an employer contribution is paid to a PRSA, the employer contribution is treated as a BIK but the individual can claim tax relief on the combined employer and personal contributions within the limits above.

Strangely, the increased tax relief limits above, i.e. 30% up to age 49, do not apply to personal contributions to an employer scheme, where the normal lower limits would therefore apply.

Accessing benefits

In general, an individual can access their RAC or PRSA at any time when he or she becomes ‘permanently incapable through infirmity of mind or body of carrying on his or her own occupation or any occupation of a similar nature for which he or she is trained or fitted’.

Because of the definition above of permanent incapacity used for RACs and PRSAs, an individual who suffers a serious career-ending injury which prevents him or her from continuing their sports occupation (or any similar sports occupation) should be able to access their RAC and PRSA benefits immediately. Whether they should or shouldn’t from a financial planning point of view is a different issue.

Where the individual is being pensioned through an employer scheme, it should also be possible to access benefits on early retirement following a serious career-ending injury.

In any event, RAC and PRSA benefits may be able to be accessed from 50 onwards. Revenue has confirmed that benefits can be accessed at age 50 from an RAC (and presumably also from a PRSA) for the following occupations (sportspeople):

Badminton Players, Boxers, Cricketers, Cyclists, Divers, Footballers, Golfers (tournament earnings), Jockeys Flat racing and National Hunt, Motor Cyclist (competitive), Motor Racing Drivers, Rugby players (professional), Speedway Riders, Squash Players, Table Tennis Players, Tennis Players, and Wrestlers.

Note that there is some mismatch between this list of professional sportspeople who can access RAC and PRSA benefits from 50, and the earlier list who qualify for the increased 30% net relevant earnings limit for tax relief on contributions under age 50.

Retirement relief

Where a professional sportsperson (on the first list above who qualifies for the increased 30% tax relief limit under age 50) permanently ceases to be involved in their sports occupation they can claim a rebate of some of the income tax they paid over a 10-year period, which the individual can nominate from a maximum 14 years in the run up to retirement.

The relief works by providing a retrospective 40% reduction in their sports income for income tax purposed over the relevant 10-year period. However, the 40% write off only applies to income directly related to their sports participation, i.e. ‘match or performance fees, prize monies and appearance monies received directly from playing the game’ and does not include sponsorship, image rights, speaker income etc.

The problem is that if the individual had claimed income tax relief on RAC/PRSA contributions during the 10-year period specified, the retrospective reduction in their taxable income for those years could cause a retrospective clawback of part or all of the pension income tax relief claimed.

This unintended consequence of claiming the retirement relief was foreseen in the legislation (s480A, TCA 1997) which provides that the retrospective reduction in their income caused by claiming the retirement relief does not reduce their income for RAC tax relief purposes for those years, and so safeguards the RAC pension tax relief claimed. The problem was that this provision did not apply to PRSA tax relief up to 31st December 2016.But the issue has been fixed by Finance Act 2016 from 1st January 2017 onwards, by ensuring the retirement relief does not reduce prior RAC or PRSA tax relief claimed.

However, there is no corresponding protection of pension tax relief for employer and employee contributions (and Revenue max funding limits) for contributions paid to an employer pension scheme.

Summary

Professional sportspeople can claim higher levels of pension tax relief, 30% of net relevant earnings up to €115k, on RAC/PRSA contributions under age 50 and can generally access their benefits at any time if they retire with a serious career-ending injury, or from age 50 in any event.

And when they retire they can claim an income tax rebate on some or all of their income received over a 10-year period, while holding onto their pension tax relief claimed, for those years.

 

Source: Tony Gilhawley FSAI, published in the LIA Journal, Volume 5, Issue 2, April 2017.