Revenue Unveil Measures to Tax Pension Lump Sums

Revenue have today unveiled new arrangements for taxing retirement pension lump-sums in excess of €200,000.

The 2011 Finance Act included a provision, Section 19 (4)(b), to ensure that an individual’s maximum lifetime retirement  tax-free lump sum is limited to €200,000. This applies from 1 January 2011 onwards.

In calculating the tax-free amount, any earlier lump sum received since 7 December 2005 is also taken into account.

Taxation of Retirement Lump Sums

The remainder of the lump sum(s) is now taxable. This is to be taxed in two stages:

  • The portion between €200,000 and €575,000 is taxed at the standard rate (20%) under Schedule D Case IV.  The taxpayer may not utilise any reliefs, allowances or deductions against this portion.
  • Any additional amount over €575,000 is taxed at the individual’s marginal tax rate. This element is counted as ‘profits or gains arising from an office or employment’ and will generally be subject to PAYE at source.

Revenue have today issued a new Form 790AA, which is to be used by pension administrators to notify Revenue of ‘Case IV’ tax deducted in accordance with the above procedures.

The Revenue eBrief on this matter is here.