Revenue Tax Briefing

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Revenue Tax Briefing Issue 66, July 2007

Finance Act 2007 - Tax Treatment of Various Pension Products

Section 17 amends Part 30 of the Taxes Consolidation Act 1997, which deals with the tax treatment of various pension products and approved retirement funds (ARFs), in a number of respects.

  • Firstly, it inserts a new Section 772A into Chapter 1 of Part 30, the purpose of which is to simplify, for reasons of administrative efficiency, Revenue's approval process in relation to certain pension schemes in line with the current approval process for retirement annuity contracts and PRSAs. The new section allows Revenue, in certain circumstances and subject to conditions, to approve a ''generic'' retirement benefits product and provides for retirement benefit schemes established under such a product to be treated as approved schemes for tax purposes without the requirement, as at present, for each individual scheme to be approved by Revenue. The type of retirement benefits product envisaged is one under which single member retirement benefits schemes are marketed by Life Offices and established using standard documentation secured by way of an insurance contract. A condition of approval is that the combined employer and employee contributions to such schemes in any year may not exceed the maximum agerelated tax-relievable contributions that may be made by an employee to a retirement benefits scheme at present.
  • Secondly, the section extends the period by which a qualifying fund manager must account for any tax due on a notional distribution from an ARF (introduced in Finance Act 2006). The notional distribution, which is calculated as a percentage of the value of the assets in the ARF as of 31 December each year, will now be regarded as a distribution made not later than February in the year following the year in which the ARF assets are valued. This means that any tax due must be remitted to Revenue not later than mid-March of that following year instead of mid-February.
  • Thirdly, the section clarifies in relation to Chapter 2C of Part 30 and the associated Schedule 23B (which deal with the limits on tax relieved pension funds) that, when calculating the amount crystallized by a benefit crystallisation event in relation to an individual under a pension scheme which is subject to a pension adjustment order (PAO), the benefit payable under the PAO is to be included in the calculation as if the PAO had not been made. In other words, any benefit arising under the PAO is deemed to be a benefit arising to the individual for the purposes of determining whether the individual's standard fund threshold or personal fund threshold has been exceeded. This applies regardless of whether the benefit under the PAO is paid as a designated benefit from the member spouse's scheme or in some other form following payment of a transfer amount in accordance with the Family Law Acts.
  • Finally, the section reduces with effect from 1 January 2007, the rate of tax applying to a chargeable excess (which arises when the capital value of pension benefits exceeds the standard fund threshold or personal fund threshold) from 42 per cent to 41 per cent in line with the reduction in the higher rate of income tax announced in the Budget.