Finance Act 2011
The Finance Act 2011 introduced significant changes to approved retirement funds and pensions. The approved retirement option was extended to all defined contribution pension schemes. It is also available to defined contribution occupational schemes who avail of the deferred annuity purchase initiative announced in 2008.
Where the ARF option is availed of, the tax-free retirement lump sum may not exceed 25% of the pension fund. This is subject to a lifetime limit of €200,000.
In the case of defined benefit schemes the existing ARF option in relation to additional voluntary contributions is retained.
A number of changes were made in relation to approved minimum retirement funds by the 2011 Finance Act. The approved minimum retirement fund threshold income was increased to 1.5 times the maximum rate of state pension being approximately €18,000 per annum. If the retiree has this level of income then he is not obliged to have an AMRF.
The amount to be placed in an AMRF is varied from the fixed limit of €63,500 to ten times the maximum annual rate of state pension contributory payable at the time of the ARF option.
The guaranteed income requirement, if not satisfied at the time of retirement may be satisfied at any time after retirement and before 75. At that juncture, the AMRF becomes an ARF.
The increase in the annual deemed distribution from ARFs was increased from 3% to 5% of the value of the fund asset.
The standard fund threshold was reduced from €5,418,085 to €2.3 million. Person whose fund exceeded this level on 7th December 2010 may claim a personal fund threshold. This is the aggregate of the capital value of pension benefits which the individual has already become entitled to since 7th December 2005 and capital value of uncrystallised pension rights which the person had on 7th December 2010. Where this amount exceeds €2.3 million, the higher amount will be the individual’s personal fund threshold, provided it does not exceed the previous threshold of €5,418,085. A person who had a personal fund threshold under the previous scheme may retain it.
The standard capitalisation factor in determining the value of the fund benefit pension rights is deemed 20 for the purpose of estimating the individual’s personal fund threshold.
The annual earnings limit for pension contributions was reduced to €115,000 from €150,000 in 2011.
Finance Act 2011 provided maximum lifetime retirement lump free sum of €200,000 as and from 1st January 2011. Amounts between €200,000 and €570,000 are taxed at the standard rate. Sums above this are taxed at the marginal rate. The latter threshold is 25% of the standard fund threshold.
The excess is chargeable at the top rate is treated as gains of an office and accordingly subject to PAYE.
Tax-free retirement lump sums taken after 7th December 2005 count towards the limit. The limit may be exceeded in the case of lump sums from a number of different sources or pensions. The restrictions applies to all pensions arrangements including retirement annuity contracts, public sector, statutory pensions, PRSAs, occupational pension schemes.
The charge does not apply to lump sum death in service benefits paid to a widow.
There are provisions requiring making of returns and payment of tax.
The ARF option was not generally available to members of defined benefit schemes except in relation to proprietary directors and members who hold additional voluntary contributions. The amount which can be transferred by a non-proprietary director is limited to the amount of the AVC less part of the fund used to fund the tax-free lump sum.
The imputed distribution does not arise where the actual funds distributed exceed the imputed distribution amount.
The personal fund threshold is calculated on the aggregate of the capital value of pension benefits which the individual has already become entitled to since 7th December 2005 plus the capital value of any uncrystallised pension rights which the individual had on seventh December 2010.
Where the tax arises on the lump sum, the pensioner and administrator are jointly and severally liable.
Finance Act 2012
The annual deemed distribution taken from assets in an Approved Retirement Fund was increased from 5 to 6 percent, for ARFs with a value of more than €2,000,000. This applies for the entire fund. The provisions also apply to vested PRSAs, being PRSAs under which payments have commenced (being a PRSA in the assets are available to the PRSA holder).
The rate of tax on funds taken by children over 21 from an ARF was increased from 20 percent to 30 percent by FA 2012.
The imputed distribution applies as at 30th November in the tax year. The charge is reduced by distributions actually made. The market value rules are set out in legislation.
It is possible to appoint a nominee manager where a person has a number of ARFs and/or vested PRSA for the purpose of the distribution. For funds over €2,000,000, a nominee manager must be appointed. The nominee manager must comply with certain requirements. The tax is due two months after the end of the year of assessment concerned. The implied distribution rules apply where the person is aged over 60 or over.
After 2011 income tax is payable on lump sums from pension schemes over €200,000. This is charged at 20 percent with a marginal rate applying on distributions over €575,000.
FA 2012 introduced relief to prevent double taxation where a person is taxed by reason of his fund exceeding certain minimum/maximum amounts. A limited credit was given to ensure that the tax chargeable on the marginal rate (over €575,000) is not also taxed as part of the chargeable excess in the fund.
FA 2012 increased the annual deemed distribution from an Approved Retirement Fund from five percent to six percent in the case of ARFs with a value use in excess of €2,000,000. It extended the imputed distributions to vested PRSAs, where benefits have commenced.
The income tax applicable to ARF asset passing to the children over 21 years of age of the beneficiary was increased from 20 to 30 percent by FA 2012. This is standalone special tax, which neither erodes CAT thresholds nor affects the general income tax calculation of the recipient.
The ARF imputed distribution was increased from three percent to five percent in 2011. The retention of the funds within a vested PRSA had been outside the scope of the charge.
The imputed distribution is reduced by the amount of actual distribution during the relevant calendar year. The imputed distribution is based on the aggregate market value of the funds of an individual on 30th November in the calendar year, where the tax value exceeds where the value does not exceed €2,000,000. The rate is 5 %. Where the value exceed €2,000,000 the charge is 6% of the entire value.
Where a person has multiple ARFs or vested PRSA, a nominee administrator may handle the distributions. Where the funds exceed €2,000,000, a nominee manager is mandatory. The tax is due two months after the year of assessment. The imputed distribution rules apply when the individual is over 60 years old during the whole of the tax year.
The 2011 Act made lump sum payments in excess of €200,000 taxable. The part portion over €200,000 is subject to 20 percent tax and the amount above €535,000 is taxable at the marginal rate.
FA 2012 introduced provisions to reduce the effect of certain anomalies which arose both on the taxation of pension lump sums and on the surcharge that applied when pension funds exceeded the standard fund threshold of €2,000,000. The legislation seeks to give for credit for one charge against the other for certain categories of pension holders in order to avoid the onerous effect. It applies to certain individuals with both public and private sector schemes.
Formerly, there was mechanism whereby the trustees or administrators of public schemes could seek repayment of tax which applied, where benefits exceeded the standard fund threshold, when certain events occurred. The reimbursement could be taken from payment of the pension benefits, including the lump sum. Sums outstanding on the death of the pensioner could be recovered from his estate.
FA 2012 Act made revised provisions on reimbursement in the case of public sector administrators who pay tax on behalf of the pensioner. Where the tax on the chargeable excess, exceeds 50 percent of the net lump sum, a maximum of 50 percent can be taken (or higher with the agreement of the pensioner), may be appropriated. The balance may be deducted from gross annual payments over a period to be agreed, not to exceed 12 years.
The following is general provision
FA 2013 provides for access to AVCs and PRSAs prior to the due date (pensionable age) subject to limited conditions. The maximum access allowed is 30% of the value of the AVC at the time of transfer. It is available to a member of an approved or statutory scheme that has paid into an AVC fund.
The provisions apply to AVC arrangements which are established through PRSAs. The AVC Fund does not include additional voluntary contributions to purchase notional service under public service schemes. The option was available for a period of three years after commencement of FA 2013.
PAYE applies to the payment at the person’s marginal rate. Neither USC nor PRSI is payable. Provision is made to facilitate the exercise of the option without interfering with the tax status of the schemes. Alterations of the rules to permit payments are permissible.
The purpose was to facilitate access to retirement funds on a once off basis for the purpose of reducing indebtedness. It also assisted individual with excessive pension funds which would otherwise be subject to charges for exceeding limits. Administrators of schemes are obliged to report on pre-retirement access transfers on a quarterly basis.
FA 2013 changed provisions on AMRFs. Individuals who are guaranteed retirement income of €12,700 per annum need not transfer funds into an AMRF. Where they cannot do so, the amount to be transferred must be €63,500. The provisions apply to existing AMRF holders. Where they have the requisite guaranteed income, the AMRF may be converted into an ARF. This will allow access before the age of 75 to the capital of the fund.
Where a person has guaranteed income less than €12,700 per annum within the AMRF to the extent the capital exceeds €63500, it will convert to an ARF.
Where a lump sum is taken after 1st of January 2011 over €200,000 it is subject to surcharge. There is a credit allowed on the element of double charge.
Finance (No.2) Act 2013
The special ability of certain sports person to put aside up to 40% of their income over a period of time towards retirement originally required that the person be resident in the State. FA (No.2) 2013 amended this to cover persons resident in the EU/EEA. The person is to comply with income taxes act’s requirements while resident and comply with requirements during the period of which he is liable.
Finance No. Act 2013 provided tax relief for certain contributions made by individuals in the public sector who opt for incentivised early retirement.
Finance Act 2013 allowed holders of certain AVCs to encash up to 30% prior to retirement. The value of the standard fund threshold is reduced to €2 million. Individuals with pensions funds between €2 million and €2.3 million are allowed to retain a personal fund threshold.
Tax free lump sums are now tax free only to €200,000 and subject to the standard rate of tax up to the level of the standard fund threshold, after which 41% tax applies on the balance. A standard rate applies up to 25% of the standard fund threshold (€2 million).
The Finance Act (No.2) 2013 permits such access to AVCs as allowed under the 2013 Act notwithstanding the rules of the scheme.
The standard fund threshold was originally €5 million as of 2005. This was reduced to €2.3 million in 2010 and further reduced to €2 million in 2013.
There is a benefit crystallisation event when a person becomes entitled under a pension scheme for the first time. The Finance No. 2 Act 2013 reduced the standard funds threshold to €2 million. As occurred in relation to each reduction, there were transitional arrangements allowing for persons to apply for a personal fund threshold. This was limited to €2.3 million in the present case.
There is tax on the chargeable excess. When the value on the benefit crystallisation event, either alone or on previous crystallisation events after 2005, exceeds the standard fund threshold or an individual’s personal fund threshold, a chargeable excess arise. This generally arises at 41%. This must be paid upfront by the pension administrator.
There is a €200,000 tax-free amount maximum. This is aggregated with previous sums received after 7 December 2005. The excess over this sum but less than [ ] 25% of the standard fund threshold is taxed. The standard rate of income tax applies on the balance is taxed at 41%.
There is a tax credit for the tax on the standard chargeable amount against the tax on the chargeable excess. Where the crystallisation event covers the tax on the chargeable excess, tax levied on the standard chargeable amount is available as a credit against this tax levied on the taxable part of the lump sum if the marginal rate is not available as a credit against the chargeable excess.
The personal fund threshold is based on the value of an individual’s uncrystallised pension entitlements. In the case of the Finance No 2 Act 2013, the applicable date is 1, January 2014. A tax certificate is issued. The maximum personal tax is €2,300,000. There have been restrictive provisions since 2005 and a person may hold an existing certificate.
The personal fund threshold describes the maximum tax relief pension fund that could be crystallised without giving rise to a chargeable excess at the 41% rate.
Defined contribution schemes are valued by reference to the actual funds. Defined benefit schemes are valued by reference to a published capitalisation factor (20 as of 2014).Where the accrued pension fund as on 1 January 2014 exceeds the standard fund amount, the certificate may be applied for.
The administrator may recover chargeable excess tax paid by reduction of the pension rights or by reimbursement arrangement.
The Finance Act 2014 amends provision in respect of approved retirement funds.
It is confirmed that a distribution including an assignment of the AIF fund itself is a distribution of assets for the purpose of the tax charge. Accordingly, income tax arises on the distribution.
A new category of distribution arises on an acquisition by the ARF of an interest either alone or jointly in units or shares in any fund, trust or scheme acquired directly or indirectly where
Under a pension arrangement the holder of which is connected with the beneficial owner of the ARF acquires at any time, any interest in the same fund or sub fund or where the owner
there is any arrangement under which the value of the units held by the owner of the pension arrangement increases or may increase in the future, which is attributable directly or indirectly to units held by the AIF holder.
In the above cases, there is a distribution in the amount equal to the investment made by the ARF. Where there is a distribution from an ARF by virtue of the above provisions, the usual exemptions do not apply to income and gains on the investment of the pension arrangement which has been invested and the liability to tax falls on the pension scheme administrators.
The annual deemed distribution from ARFs or vested PRSAs are 5% and 6% on funds over €2 million. If the amount is not drawn down, there is no credit for tax paid on the deemed distribution. The effect of the provisions is to compel/highly incentivise running down of funds during retirement.
The Finance Act 2014 provides that the deemed distribution is 4% or where the fund is less than 4%, or where the holder is aged 70 or more, 5%. Where the fund is greater than €2 million, the rate is 6% irrespective of age.
The provisions regarding approved minimum retirement funds are amended by the Finance Act 2014. A holder may draw down an mount not exceeding 4% of the fund subject to tax in the normal manner.
Prior to Finance Act 2014, a pension adjustment order in matrimonial proceedings was ignored. In determining the limits on the fund of €2 million, the Finance Act 2014 provides that tax charge on the excess over the personal fund threshold or €2 million (SFT), whichever is higher is to be shared between the member and non-member.
This requires significant amendments to give administrators of pension sufficient public to deal with the tax.
Finance Act 2016
Prior to 2016, benefit crystallisation events applied in respect of ARFs, AMRFs and vested, PRSAs at the rate of 40 percent excess over €2 million (or a higher personal fund threshold if available to that person for historical reasons). There is also deemed annual drawdowns by way of imputed distributions (4 percent up to 69 years , 5 percent above 70 years. It is 6 percent if the fund is in excess of €2 million). No credit is given for future distributions against this deemed drawdown.
If the fund is unvested, the benefit crystallisation event does not occur, nor does the annual deemed drawdown apply. This caused persons to leave funds unvested. Finance Act 2016 deemed unvested PRSAs and RACs to be vested upon the holders 75th birthday.
A rate of 40 percent applies to the excess over the standard fund threshold or personal threshold. The charge applies to 40 percent of the entire fund, if certain returns are not made. At the age of 75 persons must furnish details of the personal fund threshold.
The same rules apply as apply to an ARF. The survivor may take the full fund and be subject to income tax, in the same way as the pension holder.
Income Tax at 30 percent applies to children over 21, or CAT to children under 21 on the entire fund. Others who take an inheritance face CAT with a marginal with income tax, also payable on the holder’s death, thereby applying two layers of tax.
The 2016 Finance Act confirms the concept of a vested RAC for persons under 75, with unvested funds. In effect, the 2016 Act provides that for persons over 75, funds which are previously unvested are deemed vested and apply if they are vested ARFs or PRSAs. If funds are not accessed after 31st March 2017 or before the age of 75, the funds are not accessible after the age of 75.
Finance Act 2016 provides a deduction of 40 percent of gross receipts from carrying on a profession in any of the 10 or 15 previous years in the case of certain retired professional sport persons. The deduction is not taken into account in computing the person’s net relevant earnings for the purpose of contributions to a retirement annuity policy. The Finance Act 2016 extends the provision to contributions to a PRSA.
Provision is made in Finance Act 2018 for income tax relief for additional superannuation contributions payable by public servants from their pensionable pay in accordance with the Public Service Pay and Pensions Act 2017. Under the new provision additional superannuation contributions payable by public servant are deductible as an expense and can using the income assessable to income tax.
The ASC replaces the pension related deduction (PRD) formerly y deducted from the remuneration of public servants under the Financial Emergency Measures in the Public Interest Act 2009 as amended. These provisions have been replaced as of 2019 by the ASC.
The ASC is treated in the same manner as the former PRD and the deduction is treated as an expense in computing the amount of income assessable for income tax in the year in which it is made.
Finance Act 2019
Finance Act 2019 provides tax relief for pension contributions made by a company to occupational pensions schemes set up for employees of another company in certain defined circumstances. In order to qualify:
- the contributions must be made on foot of a legally binding agreement between two or more companies, under a scheme of reconstruction, under a merger, under a division or under a joint venture;
- the scheme members are current or former employees of the parties to the agreement, or parties which are subject to the agreement; and
- the contributions would be deductible if the person making the contribution was the employer of the scheme members in respect of whom the contributions are paid.
Pension no AMRF
Finance Act 2021 amends the rules in relation to the pension entitlements of a spouse or dependents of a deceased member of an occupational pension scheme who dies in service. It allows occupational pension scheme rules to provide that the aggregate pension that can be provided for a spouse or for dependents of a deceased member of a scheme who dies in service, can be taken as either a pension or the benefits transferred to an Approved Retirement Fund (ARF).
Where benefits are transferred to an ARF for a spouse or for dependents of a deceased member of a scheme who dies in service, the legislative rules applying to ARFs and the conditions relating to ARFs apply.
Finance Act 2021 allows for the transfer of a scheme member’s entitlements from an occupational pension scheme to a Personal Retirement Savings Account (PRSA).
Scheme members were previously not permitted to transfer an occupational pension scheme to a PRSA if they had more than 15 years’ service.
Finance Act 2021 provides for the removal of the Approved Minimum Requirement Fund (AMRF) requirement for individuals availing of the Approved Retirement Fund (ARF) option on retirement and the transfer of current AMRF funds to an ARF for current AMRF holders.
The AMRF requirement no longer applies to individuals availing of the ARF option from occupational pension schemes, retirement annuities and personal retirement savings accounts with effect from the passing of this Act.
On 1 January 2022 current AMRFs l become an ARF and the legislative rules applying to ARFs shall apply.
Thirdly, the current legislative rules applying to AMRFs and conditions relating to AMRFs will be repealed with effect from 1 January 2022. Qualifying fund managers shall not accept any assets into an AMRF on or after 1 January 2022.
Finance Act 2021 amends tax relief for pensions contributions made by a company to occupational pensions schemes set up for the employees of another company in certain defined circumstances, such as a scheme of reconstruction, a merger, a division or a joint venture. The qualifying criteria will now provide that, in addition to parties to an agreement, scheme members may be current or former employees of a company for the benefit of whose employees the contributions are paid under the terms of a legally binding agreement between two or more companies.
Finance Act 2022 introduces a new section 200A of the TCA 1997 on the treatment of lump sums drawn down from foreign pension arrangements. With effect from 1 January 2023, an individual who is paid a lump sum from a foreign pension arrangement, which is not subject to the provisions of section 790AA, may claim a tax-free exemption of €200,000 on the lump sum.
Amounts in excess of this tax-free limit are subject to tax in two stages. The portion between €200,000 and €500,000 is taxed at the standard rate of 20 per cent while any portion above that is taxed at the individual’s marginal rate of tax and USC. The standard rate charge is effectively ‘‘ring- fenced’’ so that no reliefs, allowances or deductions may be set or made against that portion of a lump sum subject to that charge.
These limits are lifetime ones and as such, all lump sums from a foreign pension arrangement which are paid to a resident individual after 1 January 2023 will “use up” these limits, in addition to all prior lump sums subject to the provisions of section 790AA which were paid before or after 1 January 2023.
The portion of a lump sum which is charged at the standard or marginal rate of income tax is regarded as income of the individual for the tax year in which the lump sum is paid and accordingly, it is charged to tax under Case III of Schedule D and subject to income tax self-assessment provisions.
Finance Act 2022 deleted provisions, which treated both employer and employee contributions to a PRSA for the purposes of the tax relief as if they had been made by the employee. This was no longer required following the abolition of the BIK charge.
It amended the definition of “PRSA employer contribution” (which required the employer to provide statistical details on payments through payroll systems) was updated to change an obsolete legislative reference. Reference to employer PRSA contributions was removed (which deals with the application of the PAYE system to certain perquisites).
Finance Act 2022 removed from the list one entity that is no longer an accountable person required to operate Professional Services Withholding Tax, and added three entities that are now accountable persons and by amending the wording of one entry.
Finance Act 2022 exempted up to €20,000 from income tax, for certain profits arising from the production, maintenance and repair of certain musical instruments. The exemption is available to individuals who are chargeable