With effect from 1 January 2011, amounts in excess of the maximum lifetime retirement tax free lump sum of €200,000 are taxed in two stages. A portion of the excess lump sum between €200,000 and €575,000 is taxed under Case IV Sch D at the standard rate of tax and the excess above €575,000 is taxed under Sch E at the individual’s marginal rate. A new Form 790AA (including general guidance notes) is now available on the Revenue website. This new Form should be used to return details of the excess lump sum taxed under Case IV Sch D.
Section 19 (4)(b) Finance Act 2011 inserted a new section 790AA into the Taxes Consolidation Act 1997 which provides, with effect from 1 January 2011, that the maximum lifetime retirement tax-free lump sum is €200,000.
Where a lump sum is paid to an individual on or after 1 January 2011, the tax-free amount appropriate to that lump sum is determined having regard to any earlier retirement lump sums paid on or after 7 December 2005. Amounts in excess of this tax-free limit are subject to tax in two stages.
- The portion between €200,000 and €575,000 is taxed under Case IV of Schedule D at the standard rate. The standard rate charge is ring-fenced, therefore no reliefs, allowances or deductions may be set or made against this portion.
The administrator of a relevant pension arrangement who deducts tax under Case IV of Schedule D from an excess lump sum is required to make a return within 3 months and pay the resultant tax to the Collector General at the same time by electronic funds transfer (EFT). For this purpose, the administrator must use the new Form 790AA.
- Any portion above €575,000 is taxed at the individual’s marginal rate of tax. This amount is regarded as profits or gains arising from an office or employment and accordingly computed in accordance with the Schedule E basis of assessment.
The portion regarded as profits or gains arising from an office or employment and taxed under Schedule E should not be included in Form 790AA but should be included in forms P30, P35, P60 etc.
Form 790AA and further information on the treatment of retirement lump sums are set out in Revenue’s eBrief No. 27/11.