Revenue Note for Guidance

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Revenue Note for Guidance

848ABA Withdrawal of tax credits

Summary

This section provides for a clawback of a proportion of the tax credits paid by the Exchequer where an individual availing of the incentive withdraws any funds from their pension product within one year of it having received those tax credits.

Details

Definitions

(1) In this section—

“requested amount” means an amount of money requested, within one year of vesting day, by the individual from his/her pension provider;

“retained amount”, in relation to a requested amount and subject to subsection (4), means the amount determined by the following formula:

C

R ×

S + C

where—

R

is the requested amount,

C

is the aggregate amount of the tax credit and the additional tax credit in relation to the individual’s pension subscription, and

S

is the amount of the individual’s pension subscription;

“vesting day”, in relation to an individual’s pension subscription, means the day on which a pension provider, in accordance with section 848AA, treats tax credits as an AVC, a PRSA contribution or a premium under an annuity contract made by the individual (in other words vesting day is the day on which the individual’s pension product receives tax credits from the Exchequer).

Clawback of tax credits

(2) Where an individual’s vesting day is on or after 29 September 2006 and he/she requests funds from his/her pension product within one year of that day there will be a proportionate clawback of the tax credits paid into his/her pension product by the Exchequer. The amount of the clawback, called the retained amount, will be in the same proportion to the amount withdrawn as the total tax credits paid bear to the aggregate of the total tax credits paid and the amount of SSIA funds subscribed to the pension product. The retained amount is calculated in accordance with the formula in subsection (1).

(2)(a) Where the withdrawal of funds from the pension product takes place on or after 10 April 2007, the pension provider must deduct the amount of the clawback from any payment made to the individual.

(2)(b) Where the withdrawal of funds from the pension product takes place before 10 April 2007, the individual will be assessed to income tax by Revenue in such amount as ensures that the appropriate amount of tax credits are clawed back.

(3) Where a pension provider has deducted a clawback amount from a payment to an individual in accordance with subsection (2)(a), the pension provider must pay that amount to the Revenue Commissioners.

(4) Where an individual has invested monies other than their SSIA funds in their pension product, those monies will be unaffected by any clawback. However, any withdrawal of funds will be treated as having come from the individual’s SSIA funds and related tax credits in the first instance, and then, when those funds have been exhausted, from the other monies invested in the pension product.

Example

Using and extending the example from section 848Z:

Mr. O’Shea’s SSIA matured on 31 January 2007. €300 maturity tax was deducted, leaving net funds of €17,200. On 1 February 2007 he subscribed €15,000 of those net SSIA funds to a pension product. His pension provider made a claim to Revenue for the following amount of tax credits:

The tax credit (€1 for €3) up to a maximum of €2,500

€2,500

and

the additional tax credit (using the formula in section 848Z(3)) being—

300×15,000

= €261.63, which can be rounded up to

17,200

€262

giving a total amount of tax credits, payable on 1 March 2007, of

€2,762

On 1 October 2007 (7 months later), Mr O’Shea requests a withdrawal of €10,000 from his pension product. This will give rise to a clawback of a proportion of the tax credits paid in March. The clawback is calculated using the formula in subsection (1) as follows:

2,762

10,000×

= 1,555

15,000 + 2,762

i.e. €1,555 of the €2,762 tax credits paid on 1 March 2007 will now be clawed back.

Had Mr. O’Shea requested his €10,000 before 10 April 2007, he would have been assessed to income tax in order to collect the clawback amount (€1,555). However, as he requests it after 10 April 2007, the pension provider is required to deduct the clawback amount from the €10,000 requested by Mr. O’Shea and pay it over to the Revenue Commissioners. Mr. O’Shea will receive the balance of the amount he requested, i.e. €10,000 – €1,555 = €8,445.

Information

(5) The Revenue Commissioners may seek certain information from pension providers in respect of an individual who has made a withdrawal from their pension product within one year of it having received tax credits from the Exchequer. This information includes biographical details of the individual, details of the tax credits paid into the pension product by the Exchequer, details of the amount requested by the individual and details of the clawback deducted by the pension provider.

Relevant Date: Finance Act 2021