The Finance Bill contained a number of new provisions which were not mentioned in the Minister’s Budget speech. The following is a quick summary of five key points.
- The reduction in the imputed drawdown for ARFs and Vested PRSAs, from 5% to 4% with effect from 2015 is welcomed. The 4% rate applies where the value of the scheme is €2 million or less and the ARF/Vested PRSA holder is less than 70 years of age. When the ARF/Vested PRSA holder is 70 or more years of age, the 5% rate applies. Where the assets are worth more than €2 million, in all cases, the existing 6% rate continues to apply.
- The Bill changes the rules pertaining to AMRFs, as it allows for an annual withdrawal of up to 4% of the value of assets in an AMRF, subject to taxation. This is helpful for individuals who have low incomes post retirement, as the previous rules meant that €63,500 was “locked away” from the retiree until that person reached 75. Again this provision is welcomed.
- There is also an amendment to the excess fund tax. The tax, which arises when someone exceeds the Standard Fund Threshold (SFT), or a higher Personal Fund Threshold (PFT) if applicable, now applies at a rate of 40% rather 41%. This corresponds with the reduction in the marginal income tax rate.
- There are some technical changes relating to the apportionment of tax when the SFT or PFT is breached in the context of Pension Adjustment Orders (PAO). Previously the original member spouse had to bear the tax. The amount which was designated from an individual’s pension to a spouse/civil partner, was included for the purposes of the original member’s SFT or PFT calculation and the amount of excess fund tax was solely paid from that individual’s scheme. The new provisions provide that the tax will be apportioned so that the member and non-member spouse/civil partner share the tax charge.
- The Bill makes a number of amendments to the ARF/vested PRSA rules which are stated as being anti-avoidance measures:
- Any assignment of an ARF or of assets out of an ARF by any person is regarded as a distribution from the ARF and subject to income tax, together with USC and PRSI, as appropriate.
- Any distribution in relation to an ARF is to be deemed to be made by a Qualifying Fund Manager (QFM) and therefore subject to tax. Under the legislation, the QFM is responsible for the deduction of tax on an ARF.
- Where ARF assets are used to invest in a scheme which also involves an investment by a pension arrangement belonging to a person connected to the owner of the ARF, any arrangement whereby the investment return to that pension arrangement is attributable in any way to the ARF owner’s investment will trigger a taxable distribution from the ARF of an amount equal to the value of the ARF assets used in the investment. A distribution will also be treated as arising to any such investment in a scheme undertaken by the owner of a vested PRSA or an AMRF. The Bill also introduces a new provision to ensure that any investment returns to the pension arrangement of the connected person will be subject to income tax in the hands of the trustees or administrator of that arrangement.
For further information on any of the points raised above and how they may affect you or your clients please contact Barry Kennelly on firstname.lastname@example.org.
*Please note this content is the view of the author and not of Independent Trustee Company