Revenue Note for Guidance

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Revenue Note for Guidance

784A Approved retirement fund

Summary

This section sets out the taxation treatment which applies in relation to an approved retirement fund (ARF). In particular, it provides that where the assets of an ARF are made available for the use or benefit of the ARF holder, the ARF holder will be liable to tax on the value of the asset so made available. For years to 2011 inclusive, the section provided for the imputation of distributions from the value of assets held in an ARF in December of each year. For 2012 onwards, imputed distributions from ARFs (and vested PRSAs) are dealt with under section 790D.

The section also imposes obligations on a qualifying fund manager (QFM) to notify Revenue of the QFM’s existence and to keep appropriate accounts in relation to the fund, copies of which are to be available to the individual on whose behalf the fund is managed.

Details

Definitions and construction

(1)(a) “an approved retirement fund” (ARF) is a fund which is managed by a QFM and which complies with the conditions in section 784B.

“EEA Agreement” means the Agreement on the European Economic Area signed at Oporto on 2 May 1992, as adjusted by all subsequent amendments to that Agreement.

“EEA state” means a state which is a contracting party to the EEA Agreement.

“qualifying fund managers” (QFMs) are banks in the State (including the Post Office Savings Bank) and banks in other EEA states, building societies, credit unions, life assurance companies, collective investment undertakings, stock brokers and certain investment intermediaries.

“tax reference number” has the same meaning as in section 885.

(1)(b) References in the Chapter to an ARF are to be taken as references to assets in such a fund which is managed by a QFM for the individual who is beneficially entitled to the assets.

(1)(c) Designation of a person as a QFM for the purposes of the section does not permit that person to provide services which that person would not otherwise be authorised or permitted to provide in the State.

(1)(d) The term “distribution” (in relation to an ARF) has a very wide meaning and encompasses any payment or transfer of assets out of an ARF, or the assignment of the ARF, or assets in the ARF, by any person, including a payment, transfer or assignment to the person beneficially entitled to the assets. It does not, however, include the transfer of assets to another ARF owned by the individual.

Any distribution in relation to an ARF is deemed, for the purposes of this section, to have been made by the QFM.

Use of ARF assets by ARF holder

(1A) & (1B) ARF assets will be treated as distributed (with a consequent tax charge on the ARF holder) in so far as they are used for the following purposes:

  • used to make or secure a loan to the ARF holder or a connected person;
  • used in the acquisition of property from the ARF holder or a connected person;
  • used in the sale of ARF assets to the ARF holder or to a connected person;
  • used in the acquisition of property from the ARF holder or a connected person;
  • used in the acquisition of holiday property or of property to be used as a private residence by the ARF holder or a connected person; where the property is acquired on or after 6 February 2003 for some other purpose [e.g. letting] and is subsequently used as holiday property or as a residence by the ARF holder or a connected person the distribution will arise at the time the property comes to be used for this purpose and will include any ARF assets used in the repair or improvement of the property;
  • used in the acquisition of shares or other interests in a closely held company in which the ARF holder or a connected person is a participator;
  • used in the acquisition of tangible moveable property;
  • used in the acquisition of commercial property where used in connection with any business of the ARF holder or of any business of a connected person; where the property is acquired on or after 2 February 2006, at “arm’s length” and is subsequently used in connection with a business of the ARF holder or a connected person, the distribution will be treated as arising on the date that use commences and will include the value any ARF assets used for the purposes of expenditure on repair or improvement of the property.
  • used to invest in any fund, sub fund or scheme where the following circumstances arise—
    1. a relevant pension arrangement (within the meaning of section 787O(1)), a member or holder of which is connected (within the meaning of section 10, as that section applies for capital gains tax purposes) with the ARF holder, invests in the same, or any other fund, sub fund or scheme, and
    2. there is an arrangement whereby the investment return to the relevant pension arrangement in respect of its investment is attributable in any way to the ARF holder’s investment in a fund or sub fund or scheme.
    The use of ARF assets by an ARF holder in this fashion is treated as a distribution from the ARF (of an amount equal to the market value of the assets so used) at the time the above circumstances arise.
    Where the foregoing scenario arises, section 790E disapplies certain exemptions and reliefs in respect of the related income and gains arising to the “pension investor”.

(1BA) Subsection (1BA) was deleted by section 18(3)(a) of the Finance Act 2012 with effect from 1 January 2012. Imputed distributions from ARFs are dealt with in section 790D from 2012 onwards. Details of the operation of the imputed distribution regime for ARFs prior to 2012 can be found in earlier editions of these Notes for Guidance.

(1C) & (D) Subsection (1C) treats an amount that has been regarded as a distribution from an ARF under this section as not being an asset in the ARF for any other purpose while subsection (1D) provides that where the acquisition of assets is treated as giving rise to a distribution, the assets acquired will not be regarded as assets in the ARF. Such assets therefore lose the benefits of the tax-exempt status of the ARF. The exception to the above applies in relation to the notional distribution calculated under section 790D(4) which will continue to be regarded as an asset of the ARF. It is, therefore, specifically excluded from the effects of subsection (1C).

(1E) Subsection (1E) provides that the distribution treated as having been made in respect of an ARF asset used for the purposes set out in subsection (1B) will, except in the case of cash, be equal to the market value (within the meaning of section 548) of the asset.

Income/gains of an ARF

(2) Income and gains from assets in an ARF (set up on or after 6 April 2000) are exempt from income tax and capital gains tax while retained in the ARF.

(5) The “gross roll up” provisions which apply to funds held for pension business of insurance companies applies to money held in an ARF by an insurance company.

Taxation of distributions

(3) Subject to exceptions (and see below re pre-April 2000 ARFs) —

  • any distribution from an ARF is treated as a payment, to the person beneficially entitled to the assets in the fund, of emoluments within Schedule E. Chapter 4 of Part 42 (PAYE) applies to the distribution;
  • if the QFM has not received a revenue payroll notification in respect of that person from Revenue, tax is to be deducted from the full payment at the higher rate of income tax for the year in which it is made.

(3A) A distribution from an ARF which is used to reimburse a pension scheme administrator for tax paid by that administrator on a chargeable excess relating to the ARF holder shall not be treated as a payment to the ARF holder for the purposes of subsection (3).

(3A)(b) Where a benefit crystallisation event (BCE) giving rise to chargeable excess tax occurs in respect of retirements benefits which are the subject of a pension adjustment order (PAO), a distribution from an ARF of the non-member spouse or partner for the purposes of paying his or her appropriate share of the chargeable excess tax arising on the BCE, or a part of it (for which the QFM is made jointly liable with the non-member) is not to be treated as a taxable distribution. Chapter 2C of Part 30 deals with the taxation treatment of PAOs in the context of the standard fund threshold regime.

(4)(a) A distribution made following the death of the individual beneficially entitled to the assets in an ARF is treated as the income of that individual for the year of death and is taxable under Schedule E at his or her marginal rate, other than in the circumstances described in subsections (4)(b) or (4)(c).

(4)(b) A distribution which is made to an ARF in the name of the deceased’s spouse or civil partner (referred to as the “second-mentioned ARF” below) or is made to, or for the sole benefit of, any child of the deceased or of the deceased’s civil partner who is under 21 at the time of death is not taxable under Schedule E.

(4)(c) A distribution–

  • from the deceased’s ARF to a child of the individual or of his or her civil partner who is 21 or over at the time of death, or
  • from the second-mentioned ARF, following the death of the surviving spouse or civil partner, to a child of the spouse or civil partner who is 21 or over at the time of that death (but not to a child who is under 21 at that time),

is subject to an income tax charge under Case IV of Schedule D at a rate of 30%.

The charge under Case IV at the 30% rate applies only in respect of distributions to children who are 21 or over when the ARF owner in question dies. All other distributions (e.g. to strangers) are, as provided for in subsection (4)(a), taxable under Schedule E at the deceased’s marginal rate for the year of death.

  • It does not form part of the individual’s total income,
  • It is to be computed without regard to any deductions allowed in computing income for the purposes of the Tax Acts,
  • No reliefs, deductions or tax credits may be set against the amount so charged or against the tax payable on that amount,
  • The income tax exemption limits and marginal relief will not apply as regards income tax so charged.

(4)(d) The reporting and collection provisions that apply to excess lump sums under the provisions of subsections (8) to (15) of section 790AA also apply, with necessary modifications, to distributions chargeable to income tax under Case IV in accordance with subsection (c).

Non-application of DIRT

(6) Money deposited with a relevant deposit taker by a QFM in that capacity is not a relevant deposit for the purposes of Deposit Interest Retention Tax (DIRT) – i.e. DIRT does not apply to any interest generated.

Non-resident QFM

(7)(a) A QFM which is not resident in the State or is not trading in the State from a fixed place of business must enter into an enforceable contract with the Revenue Commissioners to meet all of the duties and obligations imposed by virtue to of the Chapter or appoint a person resident in the State to carry out those duties. Any contract between the Revenue Commissioners and a QFM is to be governed by the laws of the State and the courts of Ireland are to have exclusive jurisdiction in determining any dispute arising under such contracts. Where a QFM opts to appoint a person resident in the State to discharge the duties and obligations, the person’s identity and the fact that they have been appointed must be notified to the Revenue Commissioners. (The reference to “by virtue of this Chapter” extends the ambit of the subsection to obligations under PAYE.)

Tax liabilities of QFM

(7)(b) A QFM is liable to pay to the Collector-General any tax which the QFM is required to deduct from payments out of an ARF. Where there are insufficient funds in the ARF to meet the liability, the shortfall will be a debt due to the QFM by the person beneficially entitled to the assets in the ARF or his or her personal representative, as the case may be.

Notification by QFM

(8) A QFM is obliged to notify the Revenue Commissioners within one month of commencing to so act and the date of commencement.

(9) The Revenue Commissioners can, by way of notice, seek information from a QFM about any distributions by them from an ARF. The information can include the name, address and tax reference number of the ARF holder and individuals who receive distributions and the amount of any distributions. The provision can apply to both domestic and foreign QFMs and gives the Revenue Commissioners discretionary power to get access to relevant information about distributions should they deem it necessary.

Taxation provisions re pre-6 April 2000 ARFs

The taxation provisions for ARFs where funds were first accepted prior to 6 April 2000 differ materially from that set out above. In brief—

  • the beneficial owner of the assets in an ARF is chargeable to income tax and capital gains as if the income/gains relating to the assets arose directly to the owner,
  • distributions (other than out of income and gains) from an ARF are chargeable to income tax under Case IV of Schedule D on the individual on whose behalf the ARF is managed,
  • distributions from an ARF following the individual’s death are chargeable as income of the individual in the year of death and the QFM must account for tax at the higher rate on the distributions,
  • the QFM must maintain an income and gains account in relation to the ARF,
  • the QFM must provide the individual with an annual statement containing details of the income/gains, assets and taxation relating to the ARF.

A more detailed description of this regime is contained in the 1999 version of this publication. See also the note on section 784E regarding obligations of QFMs re returns, etc. under the regime.

Relevant Date: Finance Act 2021