781 Charge to income tax: commutation of entire pension

This section provides for a charge to tax at the rate of 10 per cent on that part of a lump sum paid in commutation of a pension (whether under an approved scheme or a statutory scheme) which exceeds the maximum lump sum which could in normal circumstances be payable. As in section 780 the charge under the section is to be made on the administrator of the scheme in question. The charge to tax is based on the amount of the commutation payment reduced by the higher of —

• the maximum commutation payment the employee would have received if the scheme had contained a rule limiting that maximum to 3/80ths of the employee’s final remuneration for each year of service up to a maximum of 40 years, and
• the maximum amount that would have been payable under the rules of the scheme in respect of that part of the pension which was commuted.

The charge does not apply where the employee’s employment was carried on outside of the State.

Relevant Date: Finance Act 2021