Revenue Note for Guidance

The content shown on this page is a Note for Guidance produced by the Irish Revenue Commissioners. To view the section of legislation to which the Note for Guidance applies, click the link below:

Revenue Note for Guidance

200A Lump sums from a foreign pension

Summary

This new section provides rules for the treatment of lump sum payments from a foreign pension arrangement, as defined, given that lump sum payments from these schemes are not covered under existing pension lump sum rules (s790AA TCA 1997).

This section applies to individuals who are paid a lump sum payment from an overseas pension plan on or after 1 January 2023.

As and from 1 January 2023, the lifetime tax-free limit on all lump sums from a foreign pension arrangement, as defined, which are paid to a resident individual is €200,000. This lifetime limit applies to a single lump sum or, where more than one lump sum is paid to an individual over time, to the aggregate value of those lump sums and/or lump sum or sums received under existing pension lump sum rules (s790AA TCA 1997).

Amounts in excess of the tax-free limit (the “excess lump sum”) are subject to tax under Schedule D Case III in two stages. The portion between €200,000 and €500,000 is taxed at the standard rate of tax while any portion above is at the individual’s marginal rate of tax.

The excess lump sum amount, if any, in excess of €500,000 is chargeable to the Universal Social Charge (USC).

Details

Definitions

(1)(a) Subsection (1) sets out the definitions and other assumptions underpinning the section.

“administrator”, in relation to a foreign pension arrangement, means the person or persons having the management of the foreign pension arrangement.

“domestic lump sum” means a lump sum referred to in paragraph (b) of subsection (1) of section 790AA construed in accordance with paragraph (c) of that subsection. It is a lump sum that is paid to an individual under the rules of a relevant pension arrangement as defined.

“excess lump sum” shall be construed in accordance with paragraph (d).

“foreign pension arrangement” means a contract, an agreement, a series of agreements, a trust deed or other arrangement, other than a state social security scheme, which –

  1. is established in, or entered into under the law of a territory other than the State,
  2. is, in good faith, established for the sole purpose of providing benefits of a kind similar to those referred to in Chapter 1, 2, 2A or 2D of Part 30, and
  3. is not a relevant pension arrangement.

“relevant pension arrangement” has the same meaning as it has in section 790AA and means any one or more of the following—

  1. a retirement benefits scheme, within the meaning of section 771, approved by the Revenue Commissioners for the purposes of Chapter 1 of Part 30,
  2. an annuity contract or a trust scheme or part of a trust scheme approved by the Revenue Commissioners under section 784,
  3. a PRSA contract, within the meaning of section 787A, in respect of a PRSA product, within the meaning of that section,
  4. a qualifying overseas pension plan within the meaning of Chapter 2B of Part 30,
  5. a public service pension scheme within the meaning of section 1 of the Public Service Superannuation (Miscellaneous Provisions) Act 2004,
  6. a statutory scheme, within the meaning of section 770(1), other than a public service pension scheme referred to in paragraph (v),
  7. a PEPP contract, within the meaning of Chapter 2D of Part 30, in respect of a PEPP, within the meaning of that Chapter.

“specified date” means 1 January 2023.

“standard chargeable amount” has the same meaning as it has in section 790AA. It is €500,000 less the tax free amount,

“tax free amount” is €200,000.

“standard rate” means the standard rate of income tax in force at the time the foreign lump sum is paid.

“tax year” means a year of assessment within the meaning of the Tax Acts.

Foreign lump sum

(1)(b)(c) References in the section to a lump sum that is paid to, obtained by, given to, or made available to an individual include references to a lump sum that is obtained by, or given or made available to, an individual.

Excess lump sum

(d) The rules for determining when an excess lump sum, if any, arises in relation to a lump sum payment (“current foreign lump sum”) made on or after the specified date (i.e. 1 January 2023) and which is treated as income under subsection (2) and taxed under subsection (3), are as follows:

  • (d)(i) Where, before the current foreign lump sum was paid, an individual has not been paid:
    1. a lump sum subject to the provisions of s790AA TCA 1997, or
    2. another foreign lump sum on or after the specified date,
    the excess lump sum is the amount by which the lump sum exceeds the lump sum limit of €200,000.
    For example, if a retirement lump sum of €600,000 was paid in February 2023 (being the first such lump sum paid to an individual) then the excess lump sum is €400,000, that is, €600,000 - €200,000 (the tax-free amount).
  • (d)(ii) Where, before the current lump sum was paid, an individual has been paid:
    1. a lump sum subject to the provisions of s790AA 1997, or
    2. another foreign lump sum on or after the specified date,
    then, the excess lump is the following:
  • (A) where the amount of the earlier lump sum(s) is less than the tax-free amount, the amount by which the aggregate of the earlier lump sum(s) and the current foreign lump sum exceeds the tax-free amount -
    For example, a lump sum of €50,000 is paid in January 2023, which is subject to the provisions of s790AA TCA 1997. A lump sum from a foreign pension arrangement of €180,000 is paid in January 2024. The excess lump sum is therefore -
    • The aggregate of the lump sums (€50,000 + €180,000) = €230,000
    • Minus the tax-free lump sum limit = (€230,000 - €200,000) = €30,000
  • (B) where the amount of the earlier lump sum(s) is equal to or greater than the tax-free amount, the amount of the current lump sum.
    For example, a lump sum of €200,000 is paid in January 2023, which is subject to the provisions of s790AA TCA 1997. A lump sum from a foreign pension arrangement of €180,000 is then paid in January 2024. The excess lump sum is therefore -
    • The aggregate of the lump sums (€200,000 + €180,000) = €380,000
    • Minus the tax-free lump sum limit = (€380,000 - €200,000) = €180,000.

Income for the year in which it is paid and chargeable to income tax

(2) Where a foreign lump sum is paid on or after the specified date, to an individual who is resident in the State at the time the lump sum is paid, the excess lump sum shall be regarded as income of the individual for the tax year in which that foreign lump sum is paid and shall be chargeable to income tax and the universal social charge in accordance with subsection (3).

Charging rules for the “excess lump sum”

(3) Subsection (3) provides rules for the charging of the excess lump sum to tax. This may arise in two circumstances.

1. Cases where the earlier lump sum(s) did not exceed the tax-free amount

In cases where the portion of the excess lump sum does not exceed the standard chargeable amount, then:

  • (a)(i) so much of the excess lump sum which does not exceed the standard chargeable amount is charged to tax under Case III of Schedule D at the standard rate, and
  • (a)(ii) so much of the excess lump sum, if any, which exceeds the standard chargeable amount shall be–
    • (I)charged to income tax under Case III of Schedule D at the higher rate of tax for the tax year in which the lump sum is paid, and
    • (II)regarded as relevant income for the purposes of Part 18D (the universal social charge).
    For example, an earlier lump sum of €50,000 is paid in January 2023, which is subject to the provisions of s790AA TCA 1997. A lump sum from a foreign pension arrangement of €180,000 is then paid in January 2024. The total lump sums paid are €230,000.
    The excess lump sum is €30,000 (i.e. €230,000 less lifetime tax-free limit of €200,000).
    As the excess lump sum amount does not exceed the standard chargeable amount of €300,000, it is charged to tax at the standard rate for the tax year in which the lump sum is paid.

(b) 2. Cases where the earlier lump sum(s) exceeded the tax-free amount

In cases where the portion of the excess lump sum is greater than the tax-free amount, then:

  • (b)(i) so much of the excess lump sum which does not exceed the standard chargeable amount is charged to tax under Case III of Schedule D at the standard rate, and
  • (b)(ii) so much of the excess lump sum, if any, which exceeds the standard chargeable amount shall be–
    • (I) charged to income tax under Case III of Schedule D at the higher rate of tax for the tax year in which the lump sum is paid, and
    • (II) regarded as relevant income for the purposes of Part 18D (the universal social charge).

For example, an earlier lump sum of €250,000 is paid in January 2023, which is subject to the provisions of s790AA TCA 1997. A lump sum from a foreign pension arrangement of €300,000 is then paid in January 2024. The total lump sums paid are €550,000.

The excess lump sum is €300,000, as the earlier lump sum exceeded the tax-free amount of €200,000. The excess lump sum is charged to tax as follows:

  • Step 1 (amount of current lump sum within standard chargeable amount)

Standard chargeable amount:

€300,000

Less:

Amount utilised by earlier lump sum:

€ 50,000 (€250,000 less €200,000)

€250,000

This amount (€250,000) is charged to tax under Case III of Schedule D at the standard rate of tax.

  • Step 2 (amount of current lump sum exceeding standard chargeable amount)

Excess lump sum:

€300,000

Less: amount calculated under Step 1

(€250,000)

€ 50,000

This amount (€50,000) is charged to tax under Case III of Schedule D at the higher rate of tax and it is regarded as reckonable income for USC purposes.

Person chargeable

(4) Where a foreign lump sum is paid to an individual on or after the specified date, the person liable for income tax and universal social charge charged in accordance with subsection (3) shall be that individual.

Ring fencing provisions

(5) In relation to the portion of the lump sum that is regarded as income of an individual for a tax year and charged under Schedule D Case III, to income tax at the standard rate (the portion between the tax-free amount of €200,000 and €500,000), such income –

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

In effect the charge under Case III applies to the whole of that part of the excess lump sum that does not exceed the standard chargeable amount, and nothing may be deducted or set off to reduce the tax due. This effectively ring fences the charge to tax.

Assessment, collection and recovery of income tax and universal social charge

(6) The provisions of the Income Tax Acts apply in relation to any part of an excess lump sum that is charged to tax under Case III of Schedule D, relating to the assessment, collection and recovery of income tax and universal social charge (USC).

Details regarding the foreign pension arrangement

(7) An individual claiming relief under this section shall obtain from the administrator of the foreign pension arrangement and provide to the Revenue Commissioners in such form and manner as the Revenue Commissioners may specify –

  1. such evidence as the Revenue Commissioners may reasonably require in relation to the foreign pension arrangement, including for the purpose of satisfying themselves that the requirements set out in paragraphs (a) to (c) of the definition of “foreign pension arrangement” in subsection (1)(a) are met, and
  2. without prejudice to the generality of paragraph (a) –
    1. the name and address of the administrator of the foreign pension arrangement,
    2. the date on which the individual became a member of the foreign pension arrangement, and
    3. the date or dates on which a foreign lump sum or foreign lump sums under the foreign pension arrangement became or become payable.

Right of appeal

(8) A person aggrieved by an assessment made on that person under this section may appeal by notice in writing to the Appeal Commissioners, in accordance with section 949I. The appeal must be made within 30 days after the date of the notice of assessment. The appeal is heard and determined in the manner provided for in Part 40A. A person may not appeal if he or she has not filed a self-assessed return and paid the amount of appropriate tax due in accordance with their own self-assessment (where the person was required to file a return).

Beneficiary of a deceased individual

(9) The provisions of the section do not apply to –

  • A death in service lump sum payable by an occupational or statutory pension scheme to the widow/widower, surviving civil partner, children, children of the civil partner, dependents or personal representatives of a deceased individual.

Relevant Date: Finance Act 2024