787R Liability to tax and rate of tax on chargeable excess

Summary

This section is the charging provision and sets out who is liable for the tax on a chargeable excess and the rate of the tax charge. In general, the person liable to pay the tax charge in the first instance is the pension scheme administrator but both the administrator and the individual in respect of whom the benefit crystallisation event (BCE) occurs are jointly and severally liable for the charge.

However, where a BCE occurs in respect of a member’s benefits under a pension arrangement in respect of which a Pension Adjustment Order (PAO) has been made in favour of a non-member spouse or civil partner, the section provides that any chargeable excess tax arising on the BCE must be apportioned between the relevant member and the non—member. It also sets out who is liable for the relevant member’s and non-member’s share of the chargeable excess tax in such situations.

To ensure payment of a non-member spouse or civil partner’s share of chargeable excess tax in circumstances where the non-member spouse or civil partner has availed of a transfer amount to provide an independent benefit in a separate scheme, the section provides for a process of certification of the amount of the non-member’s share of the tax by the administrator of the relevant member’s scheme giving rise to the chargeable excess tax, to the administrator of the non-member spouse or civil partner’s scheme etc. and notification of the amount of the non-member’s share of the tax to the nonmember.

The section also provides for an administrator to seek information from an individual by way of a declaration about prior BCEs so that the administrator can determine if a current BCE gives rise to a chargeable excess and therefore a tax charge. An administrator may withhold payment of a pension benefit where an individual, having been requested to provide a declaration, fails to do so.

Finally, the section provides for the keeping of all relevant records by the administrator, subsequent administrator or fund administrator, as the case may be, and the provision of those records when requested to do by a notice in writing from a Revenue officer.

Details

(1) The whole of a chargeable excess will be charged to income tax under Case IV of Schedule D at the higher rate of tax for the tax year in which the BCE giving rise to the chargeable excess occurs and nothing may be deducted or set off to reduce the tax due. It effectively ring fences the charge to tax. The chargeable excess, or the tax thereon, should not be included on forms P30, P35, P60 etc. as those forms relate to amounts charged, and tax paid, under Schedule E.

(2) Subject to subsection (2A)(d), the pension scheme administrator and the individual in relation to whom the BCE occurs are jointly and severally liable for payment of the tax.

This means that payment by one will discharge the liability of the other to the extent of the payment made. Joint and several liability ensures that there are alternative means of enforcing collection of any tax due on a chargeable excess.

(2A)(a) Where an individual is a relevant member of a pension arrangement (i.e. a member in respect of whose benefits a PAO has been made) chargeable excess tax arising on a BCE under the arrangement in respect of that member must be apportioned by the administrator between the member and the non-member (i.e. an individual in whose favour a PAO has been made in respect of the relevant member’s retirement benefit). The apportionment must be made in accordance with paragraph (b) and the requirement to apportion applies equally to the administrator of a pension scheme to which the member may have taken a transfer after the PAO was made. The persons liable for the tax so apportioned, and the extent of their respective liabilities, are set out in paragraph (d).

(2A)(b) Subject to the assumption in paragraph (c), each party’s share of the tax referred to in paragraph (a), referred to as the “appropriate share”, is in the same proportion as each party’s share of the retirement benefit arising under the BCE that gives rise to the chargeable excess tax, having regard to the designated benefit payable to the nonmember under the PAO.

(2A)(c) The assumption in this paragraph is that where a transfer amount has been applied to provide a separate independent benefit for the non-member, the apportionment of the retirement benefit giving rise to the chargeable excess tax between the non-member and the member is determined as follows:

• the non-member’s share of the retirement benefit is–
1. where the arrangement is a defined benefit arrangement and it is the arrangement in respect of which the PAO was made, the designated benefit on which the transfer amount was calculated, and
2. the transfer amount, in all other cases.
• the member’s share of the retirement benefit is the residual benefit after deducting the non-member’s share and is determined by the formula A – B, where–

A is the retirement benefit arising under the BCE in question, and

(2A)(d) B is the non-member’s share of the benefit.

This paragraph sets out the persons who are liable for the tax apportioned in accordance with paragraph (b) and the extent of their liability. It ensures that the correct liability attaches to the correct persons and reflects the range of possibilities that can arise. It also makes it clear that the liability of the various persons listed is joint and several.

(2A)(d)(i) The administrator of the relevant member’s scheme and the relevant member are liable for that member’s share of the tax.

(2A)(d)(ii)(I) Where the designated benefit is retained within the member’s pension (i.e. no transfer amount has been applied), the administrator (again of the relevant member’s scheme) and the non-member (i.e. the spouse or civil partner in whose favour the PAO has been made) are liable for the non-member’s share of the tax. This is notwithstanding any provisions of a PAO that might provide for pension benefits to be made available to the non-member spouse or civil partner without regard to taxation issues.

(2A)(d)(ii)(II)(A) Where a transfer amount has been applied to provide an independent benefit in respect of the non-member and the non-member’s benefit under that scheme has not yet crystallised at–

• the date the subsequent administrator (i.e. the administrator of the transfer arrangement providing the independent benefit) receives a certificate from the administrator of the member’s scheme notifying the subsequent administrator that the non-member is liable for part of a chargeable excess tax (subsection (3B) refers), or
• the date of the BCE giving rise to the chargeable excess, where the administrator and the subsequent administrator are the same person,

the subsequent administrator and the non-member are liable for the non-member’s share.

(2A)(d)(ii)(II)(B) Where a transfer amount has been applied to provide an independent benefit in respect of the non-member and the non-member’s benefit under that scheme has crystallised at the date the subsequent administrator receives a certificate under subsection(3B) (or, where the administrator and subsequent administrator are the same person, at the date of the BCE giving rise to the chargeable excess) and the non-member is in receipt of a pension payable from the scheme, the subsequent administrator and the non-member are liable for the non-member’s share.

(2A)(d)(ii)(II)(C) Where a transfer amount has been applied to provide an independent benefit in respect of the non-member and the non-member’s benefit under that scheme has crystallised at the date the subsequent administrator receives a certificate (or, where the administrator and subsequent administrator are the same person, at the date of the BCE giving rise to the chargeable excess), and the non-member has exercised a relevant option under the transfer arrangement (i.e. the non-member has opted to place his or her benefits (after taking a tax free lump sum) into an ARF/AMRF or retained the benefits within a vested PRSA), the fund administrator (i.e. the QFM or the PRSA administrator) and the nonmember are liable for the non-member’s share.

(2A)(d)(ii)(III) This paragraph provides that in any case, other than those set out in this subsection, the liability is solely that of the non-member in respect of his or her share of the chargeable excess tax. This caters for situations where the non-member spouse has taken an annuity, or has drawn down all of his or her benefits as a taxable amount (under the various ARF options) such that there is no pension scheme administrator, QFM or PRSA administrator that has control of the pension fund or proceeds of the pension fund to which liability can be attached.

The liability of a subsequent administrator or a fund administrator (i.e. QFM/PRSA administrator) shall not exceed the lesser of the non-member spouse’s appropriate share of the chargeable excess tax and –

• in the case of a subsequent administrator, the amount or value of the assets in the transfer arrangement (at the point at which the non-member’s rights under that arrangement are being transferred to another arrangement (this recognises that a non-member spouse or civil partner may request a transfer to another scheme after the date the subsequent administrator of the scheme from which the transfer is to be made, has received a certificate stating the non-member’s share of the chargeable excess tax) or at the point the non-member spouse or civil partner’s retirement benefits under the transfer arrangement mature and are drawn down.
• in the case of a fund administrator, the value of the assets in the fund at the date the fund administrator is advised (by way of a certificate or copy certificate) that the non-member (i.e. the beneficial owner of the ARF or PRSA) has a chargeable excess tax liability.

(3) Any person liable for tax on a chargeable excess (whether in accordance with subsection (2) or subsection (2A)d)) is liable for the tax irrespective of whether or not they are resident in the State. This is to avoid any doubt about the liability to the charge of, for example, the administrator of an overseas pension arrangement who may be providing pension services to Irish individuals.

(3A) The tax on a chargeable excess that any person referred to in subsection (2) or subsection (2A)(d) is liable for, is the amount of that tax less any credit due for tax paid on an excess lump sum, as provided for in section 787RA.

(3B) Where chargeable excess tax is apportioned by an administrator in a situation where a transfer amount has been applied to provide the non-member with an independent retirement benefit, the administrator must, within 21 days from the end of the month in which the BCE giving rise to the chargeable excess tax arises, establish who the subsequent administrator is and provide that administrator with a certificate containing the information set out in the subsection.

An administrator is not required, however, to provide a certificate if the alternative circumstance arises, i.e. where the administrator is also the subsequent administrator, (subsection (2A)(D)(ii)(II) refers). This situation occurs where the independent benefit provided for a non-member is in the same scheme as the member’s scheme – as the administrator will be the administrator of the independent scheme as well.

(3C)(a) Where chargeable excess tax is apportioned by an administrator in a situation where a transfer amount has been applied to provide the non-member with an independent retirement benefit and, at the time the subsequent administrator receives a certificate referred to in subsection (3B),

• the non-member’s benefits under the transfer arrangement have crystallised, and
• the non-member has exercised a relevant option under the transfer arrangement (i.e. has an ARF or vested PRSA),

then, if the subsequent administrator and the fund administrator are not the same person (e.g. the pension administrator and the QFM are not the same Life Company), the subsequent administrator must establish who the fund administrator is and forward a copy of the certificate to that administrator within 21 days from the date the subsequent administrator received the certificate.

(3C)(b) Where the administrator and the “subsequent administrator” are the same person, but the administrator and the fund administrator are not the same person, the administrator must within 21 days from the end of the month in which the BCE giving rise to the chargeable excess tax arises, establish who the fund administrator is and provide the fund administrator with the certificate referred to in subsection (3B).

This subsection allows the fund administrator of the ARF/vested PRSA deal with the tax liability arising in respect of the non-member’s appropriate share of the chargeable excess tax.

(3D) An administrator, subsequent administrator or a fund administrator must within 21 days from –

(a) the end of the month in which the BCE giving to the chargeable excess occurs (in the case of an administrator, including an administrator who is either or both the subsequent administrator and the fund administrator), or

(b) the date of receipt of a certificate or copy certificate (in the case of a subsequent administrator or fund administrator) notify the non-member in writing that he or she is liable for chargeable excess tax and the amount of the liability.

In addition, if at that point the administrator or the subsequent administrator is aware that the non-member is the sole person liable for the tax in question, they must advise the non-member of that fact and that the tax is due and payable by the non-member to the Collector-General within 3 months of the date of the written notification. This could arise, for example where the non-member’s benefits had crystallised and he or she had taken them in the form of an annuity such that there is no pension scheme administrator, QFM or PRSA administrator that has control of the pension fund or proceeds of the pension fund to which liability can be attached.

(3E) Where a notification is sent to a non-member in accordance with subsection (3D), and the non-member is the sole person liable for payment of the tax in question, a copy of the notice must be sent to Revenue at the same time as the original is sent to the nonmember.

(4) Where a BCE is due to occur, the pension scheme administrator may request the individual concerned to provide a written declaration in advance on a form to be prescribed or authorised by Revenue which contains certain information as follows:

1. the individual’s full name, address and PPS No.,
2. details of the amount and date of each BCE that has occurred in respect of the individual on or after 7 December 2005,
3. details of the expected amount and date of BCE’s likely to occur between the date of the declaration and the date of the BCE which is the subject of the request for a declaration,
4. the amount of the individual’s personal fund threshold (PFT) – if he/she has claimed one– issued under section 787P(7) in respect of the capital value of his/her pension rights on 1 January 2014, and a copy of the PFT certificate or a copy of a revised certificate issued under section 787P(8), or where relevant, a copy of a certificate issued by Revenue under the legislation as it applied before the passing of Finance (No.2) Act 2013,
5. details of any unpaid tax that the administrator of a public sector scheme has to pay as a result of the provisions of section 787TA, and
6. such other information as Revenue may reasonably require for the purposes of Chapter 30.

The reason for this facility is that, in order for a pension scheme administrator to determine if a BCE is going to give rise to a chargeable excess, the administrator needs to know if there have been, or are likely to be, any prior BCE’s that must be aggregated with the current BCE for the purposes of seeing if the standard fund threshold or personal fund threshold has been exceeded. The date on which these prior BCE’s have taken place is important as their value must be grossed-up in line with any movement in the standard fund threshold or personal fund threshold arising from the annual indexation of these amounts from 2007 in line with an earnings factor.

(5) Where a declaration requested under subsection (4) is not provided, the administrator may withhold the payment of benefits or refuse to transfer sums until such time as the declaration is provided.

(5A) Where the owner of a Retirement Annuity Contract (RAC) or a PRSA does not take benefits from the RAC or PRSA by age 75, such benefits are treated as commencing on the date of the owner’s 75th birthday or on 25 December 2016 (i.e. the date Finance Act 2016 was passed), if he or she is 75 years of age before 25 December 2016, notwithstanding that benefits have not actually commenced by the date in question.

An individual whose RAC or PRSA vests in these circumstances must provide a declaration containing the details referred to in subsection (4) to his or her administrator within 30 days from the date of the deemed vesting, regardless of whether or not the declaration is requested by the administrator.

Where an individual fails to provide a declaration, the administrator must assume that the individual’s Standard Fund Threshold or Personal Fund Threshold, if applicable, is fully “used up” and, accordingly, the entire value of the BCE is treated as a “chargeable excess” and taxed at the higher rate of income tax in force for the year in which the BCE arises.

An administrator must retain declarations provided under subsections (4), (5) and (5A) for a period of six years and must make them available to an officer of the Revenue Commissioners if requested to do so by notice in writing.

(6) An administrator must retain declarations provided under subsections (4) and (5) for a period of six years and must make them available to an officer of the Revenue Commissioners if requested to do so by notice in writing.

(6A) An administrator, subsequent administrator or a fund administrator, as appropriate, is required to retain for a period of six years

• certificates or copy certificates referred to in subsections (3C) and (3C) respectively, and
• copies of any notifications given to a non-member in accordance with subsection (3D).

An administrator, subsequent administrator or fund administrator must provide the relevant certificates to a Revenue officer if requested by a notice in writing.

Relevant Date: Finance Act 2021