Don’t forget to claim your Personal Fund Threshold

The Finance (No.2) Act 2013 reduced the standard fund threshold (“SFT”) from €2.3m to €2m with effect from 1st January 2014. This was the second such reduction in the STF within 3 years. It means that anyone accessing pension benefits in excess of the €2m threshold since 1st January 2014 will be liable to an excess fund tax, in addition to the existing taxes payable on the drawdown of pension benefits.  This can lead to an effective tax rate on the excess of up to 72%.

While €2m seems like a significant fund, when we look at it in the context of how much income that could buy in retirement, it suddenly doesn’t seem all that adequate. With a fund of €2m, assuming that you take the maximum tax free lump sum of €200,000 your remaining income in retirement would be in the region of €45,000 (based on current annuity rates and assuming a joint life annuity).

However, as with previous reductions in the threshold, Revenue are allowing anyone with existing benefits above €2m as at 1st January 2014 to apply for a personal fund threshold (“PFT”). That PFT, instead of the €2m SFT, will then apply to that individual, so that the excess fund tax will only apply on benefits in excess of the PFT. The maximum PFT available is €2.3m (the old SFT amount).

Last year, Revenue introduced a new system for those wishing to apply for a PFT. Applications must now be made through an online system which can be accessed through your own Revenue On-line Service or at PAYE Anytime. This system has been available for eight months, but the final date for applications is fast approaching – it is 1st July 2015. Depending on your own circumstances it may be necessary to gather the information required from various pension providers. You will appreciate that this could be time consuming, so it is imperative for you to review your pension position as at 1st January 2014 now and make the application as soon as possible.

So, if you believe you have pension benefits valued at over €2m as at 1st January 2014, you should talk to your advisor immediately to commence the process of applying for a PFT. Failure to make an application is likely to prove very expensive.

Remember, the final date for applications is the 1st July 2015.

If you wish to speak to us about applying for a PFT, please contact Jennifer Dowd on 01-603 5125 or at jennifer.dowd@independent-trustee.com.

_{*Please note this content is the view of the author and not of Independent Trustee Company}