Pensions

Pension Schemes

Bona fide payments to an employee or former employee out of funds provided by the employee or certain others by way of retirement benefit, redundancy payment or pension are not deemed inheritances.  Benefits taken by widowed or widowers are exempt, or if taken by other dependents, will have the same threshold of the relationship between the beneficiary and the employee.

The exemption is disapplied where

• the payments are excessive, and
• the employee is a relative of the employer or the provider of the benefits,
• or if the employer is a private company controlled or deemed to be controlled by the employee.

In that latter instance, if the payments are made to a superannuation scheme, retirement scheme or redundancy scheme approved by the Revenue Commissioners, the payments are gifts or inheritances to the extent they are deemed excessive by the Revenue Commissioners.

Benefit from Scheme

Where a gift or inheritance is taken by a person other than the employee under a superannuation scheme, it is deemed taken from the employee as provider of the benefits.  The normal CAT rules apply=

Vested Retirement Funds

See the section on pensions in relation to approved retirement funds and approved minimum retirement funds. They are each deemed assets of the pensioner.  They pass on his death to his beneficiaries.

If the fund passes on the death of the pensioner to another ARF set up with the benefit of his or her spouse, no income tax charge applies, and the normal CAT exemption is available.

Special Income Tax Charge

If the fund passes to a child aged 21 years or older, a standard rate income tax charge applies but not CAT applies.  If the fund passes to children under 21 years, CAT applies to them.  If the benefit were to pass directly to a spouse and not an ARF, an immediate income tax liability would arise for the spouse.

The transfer of the ARF fund for the benefit of a child under 21 years is exempt from income tax.  CAT applies.

In the case of receipt of by a child over 21, of funds in the ARF directly, there is no CAT charge . However, a flat [30] percent standard rate income tax charge applies.  In the event of transfers from the ARF other than to a spouse or children, income tax liability at the marginal rate of the recipient applies.  A CAT charge would also apply.

Transfer of funds to a child under 21, after the death of spouse, is exempt from Income Tax but subject to CAT.  The receipt by a child over 21 years of ARF assets  following the spouse’s death, is subject to standard rate income tax

The transfer on death of an ARF set up for the pension through a spouse to an individual who is not a child, is subject to an income tax charge at the standard rate.  The individual would also be subject to CAT.

Finance Act 2017 extends the exemption in Finance Act 2016 in respect of inheritances from retirement annuity contracts and personal retirement savings accounts which are deemed to vest on the owner’s 75th birthday.

CAT Act

72

Relief in respect of certain policies of insurance.

[FA 1985 s60(1), (1A) and (2); FA 1990 s130; FA 1991 s118; FA 1996 s124]

(1)In this section—

“approved retirement fund tax” means tax which a qualifying fund manager is obliged to deduct in accordance with the provisions of section 784A(4)(c) of the Taxes Consolidation Act 1997;

“insured” means an individual or, in relation to a qualifying insurance policy where—

(a)the insured is an individual and the spouse or civil partner of that individual at the date the policy is effected,

(b)annual premiums are paid by either or both of them during their joint lives, and by the survivor of them during the life of such survivor, and

(c)the proceeds of the policy are payable on the death of such survivor, or on the simultaneous deaths of both such spouses or civil partners,

means—

(i)where the proceeds of the policy are so payable on the death of such survivor, that survivor, and the proceeds of the policy are deemed to have been provided by such survivor, as disponer, or

(ii)where the proceeds of the policy are so payable on the simultaneous deaths of both such spouses or civil partners, each of the spouses or civil partners, and each such spouse or civil partner is deemed to have provided the proceeds of the policy—

(I)to the extent that such proceeds are applied in paying the relevant tax of the insured who is that spouse or civil partner, and

(II)where the proceeds of the policy are not applied in paying relevant tax, to the extent that the proceeds not so applied are comprised in an inheritance taken under a disposition made by that spouse or civil partner;

“qualifying insurance policy” means a policy of insurance—

(a)which is in a form approved by the Commissioners for the purposes of this section,

(b)in respect of which annual premiums are paid by the insured during the insured’s life, and

(c)which is expressly effected under this section for the purpose of paying relevant tax;

“relevant tax” means approved retirement fund tax and inheritance tax payable in respect of an inheritance (excluding, in the computation of such tax, an interest in a qualifying insurance policy) taken—

(a)on the death of the insured,

(b)under a disposition made by the insured, where the inheritance is taken on or after the date of death of the insured and not later than one year after that death, or

(c)under a disposition made by the spouse or civil partner of the insured where the inheritance is taken only in the event of the insured not surviving the spouse or civil partner by a period of up to 31 days,

and the relevant qualifying insurance policy is—

(i)a policy of insurance within the meaning of paragraphs (a), (b) and (c) of the definition of “insured” in this subsection, or

(ii)a policy of insurance where the insured is an individual and the proceeds of the policy are payable only on the contingency of the insured surviving that spouse or civil partner.

(2)(a)An interest in a qualifying insurance policy which is comprised in an inheritance taken under a disposition made by the insured is, to the extent that the proceeds of the policy are applied in paying relevant tax, exempt from tax in relation to that inheritance and is not taken into account in computing tax.

(b)An interest in a qualifying insurance policy which is comprised in an inheritance taken under a disposition made by the insured is, to the extent that the proceeds of the policy are not applied in paying relevant tax, and notwithstanding the provisions of this Act, deemed to be taken on a day immediately after—

(i)the date of the death of the insured, or

(ii)the latest date (if any) on which an inheritance is taken in respect of which that relevant tax is payable,

whichever is the later.

(c)For the purposes of this section, an amount of the proceeds of a qualifying insurance policy equal to the amount of approved retirement fund tax shall be treated as applied in paying relevant tax of that amount.

73

Relief in respect of certain policies of insurance relating to tax payable on gifts.

[FA 1991 s119(1) to (5)]

(1)In this section—

“appointed date” means—

(a)a date occurring not earlier than 8 years after the date on which a relevant insurance policy is effected, or

(b)a date on which the proceeds of a relevant insurance policy become payable either on the critical illness or the death of the insured, or one of the insured in a case to which paragraph (b) of the definition of “insured” relates, being a date prior to the date to which paragraph (a) of this definition relates;

“insured” means—

(a)where the insured is an individual, that individual, or

(b)where the insured is an individual and the spouse or civil partner of that individual at the date the policy is effected, that individual and the spouse or civil partner of that individual, jointly or separately, or the survivor of them, as the case may be;

“relevant insurance policy” means a policy of insurance—

(a)which is in a form approved by the Commissioners for the purposes of this section,

(b)in respect of which annual premiums are paid by the insured,

(c)the proceeds of which are payable on the appointed date, and

(d)which is expressly effected under this section for the purpose of paying relevant tax;

“relevant tax” means gift tax or inheritance tax, payable in connection with an inter vivos disposition made by the insured within one year after the appointed date, excluding gift tax or inheritance tax payable on an appointment out of an inter vivos discretionary trust set up by the insured.

(2)The proceeds of a relevant insurance policy are, to the extent that such proceeds are used to pay relevant tax, exempt from tax and are not taken into account in computing such tax.

(3)Subject to sections 70 and 76, where the insured makes an inter vivos disposition of the proceeds, or any part of the proceeds, of a relevant insurance policy other than in paying relevant tax, such proceeds are not exempt from tax.

(4)A relevant insurance policy is a qualifying insurance policy for the purposes of section 72 where the proceeds of such relevant insurance policy become payable on the death of the insured or one of the insured in a case to which paragraph (b) of the definition of “insured” relates, if such relevant insurance policy would have been a qualifying insurance policy if it had been expressly effected under that section.

(5)A qualifying insurance policy for the purposes of section 72 is a relevant insurance policy where the proceeds of such qualifying insurance policy are used to pay relevant tax arising under an inter vivos disposition made by the insured within one year after the appointed date.

74

Exemption of certain policies of assurance.

[FA 1993 s133]

(1)In this section—

“assurance company” has the meaning assigned to it by section 706 of the Taxes Consolidation Act 1997;

“new policy” means—

(a)a policy of assurance on the life of any person issued, or

(b)a contract within the meaning of Article 2(2)(b) of 5 Directive 2002/83/EC of the European Parliament and of the Council of 5 November 20021 entered into,

on or after 1 January 2001 by an assurance company in the course of carrying on the business of life assurance;

“old policy” means a contract entered into by an assurance company in the course of carrying on a foreign life assurance business within the meaning of section 451 of the Taxes Consolidation Act 1997 and issued on or after 1 December 1992 and before 1 January 2001.

(2)Where any interest in a new policy or in an old policy is comprised in a gift or an inheritance, then any such interest—

(a)is exempt from tax, and

(b)is not taken into account in computing tax on any gift or inheritance taken by a donee or successor,

if it is shown to the satisfaction of the Commissioners that—

(i)such interest is comprised in the gift or inheritance at the date of the gift or at the date of the inheritance,

(ii)at the date of the disposition, the disponer is neither domiciled nor ordinarily resident in the State, and

(iii)at the date of the gift or at the date of the inheritance, the donee or successor is neither domiciled nor ordinarily resident in the State.

(3)Where—

(a)an interest in a new policy or in an old policy, as the case may be, which is comprised in a gift or inheritance came into the beneficial ownership of the disponer or became subject to the disposition prior to 15 February 2001, and

(b)the conditions at paragraphs (i) and (iii) of subsection (2) are complied with,

then that subsection shall apply to that interest in a new policy or in an old policy, as the case may be, if, at the date of the disposition, the proper law of the disposition was not the law of the State.

75

Exemption of specified collective investment undertakings.

(1)In this section—

“collective investment scheme” means a bona fide scheme for the purpose, or having the effect, solely or mainly, of providing facilities for the participation by the public or other investors in profits or income arising from the acquisition, holding, management or disposal of securities or any other property;

“common contractual fund” has the meaning assigned to it by section 739I of the Taxes Consolidation Act 1997;

“investment limited partnership” has the meaning assigned to it by section 739J of the Taxes Consolidation Act 1997;

“investment undertaking” has the meaning assigned to it by section 739B of the Taxes Consolidation Act 1997;

“unit”, in relation to a collective investment scheme, includes shares, members’ interests, limited partnership interests and any other instruments granting an entitlement to the income or investments from the scheme;

“unit”, in relation to a common contractual fund, has the meaning assigned to it by section 739I of the Taxes Consolidation Act 1997;

“unit”, in relation to an investment undertaking, has the meaning assigned to it by section 739B of the Taxes Consolidation Act 1997.

“unit”, in relation to an investment limited partnership, has the meaning assigned to it by section 739J of the Taxes Consolidation Act 1997;

(1A)For the avoidance of doubt, the definition of ‘collective investment scheme’ in subsection (1) does not include a central securities depository (within the meaning of Regulation 909/2014 of the European Parliament and of the Council of 23 July 20141) whose rules require holders of interests in securities, held by the depository, to hold those interests by way of a co-ownership interest in a fungible pool of underlying securities.

(2)Where any unit of a collective investment scheme which is incorporated or otherwise formed under the law of a territory outside the State, a common contractual fund, an investment limited partnership or an investment undertaking is comprised in a gift or an inheritance, then, such unit—

(a)is exempt from tax, and

(b)is not taken into account in computing tax on any gift or inheritance taken by the donee or successor,

if it is shown to the satisfaction of the Commissioners that—

(i)the unit is comprised in the gift or inheritance—

(I)at the date of the gift or the date of the inheritance, and

(II)at the valuation date,

(ii)at the date of the disposition, the disponer is neither domiciled nor ordinarily resident in the State, and

(iii)at the date of the gift or at the date of the inheritance, the donee or successor is neither domiciled nor ordinarily resident in the State.

(3)Where—

(a)any unit of an investment undertaking which is comprised in a gift or an inheritance came into the beneficial ownership of the disponer or became subject to the disposition prior to 15 February 2001, and

(b)the conditions of subparagraphs (i) and (iii) of subsection (2) are complied with,

then, that subsection shall apply to that unit of an investment undertaking comprised in a gift or an inheritance, if at the date of the disposition, the proper law of the disposition was not the law of the State.

80

Payments relating to retirement, etc.

[CATA 1976 s56]

(1)In this section—

“superannuation scheme” includes any arrangement in connection with employment for the provision of a benefit on or in connection with the retirement or death of an employee;

“employment” includes employment as a director of a body corporate and cognate words shall be construed accordingly.

(2)Subject to subsection (3), any payment to an employee or former employee by, or out of funds provided by, that employee’s or former employee’s employer or any other person, bona fide by means of retirement benefit, redundancy payment or pension is not a gift or an inheritance.

(3)Subsection (2) shall not apply in relation to a payment referred to in that subsection, and any such payment is deemed to be a gift or an inheritance where—

(a)(i)the employee is a relative of the employer or other disponer, or

(ii)the employer is a private company within the meaning of section 27, and of which private company the employee is deemed to have control within the meaning of that section;

(b)the payment is not made under a scheme (relating to superannuation, retirement or redundancy) approved by the Commissioners under the Income Tax Acts; and

(c)the Commissioners decide that in the circumstances of the case the payment is excessive.

(4)(a)The Commissioners shall serve on an accountable person a notice in writing of the decision referred to in subsection (3).

(b)An accountable person aggrieved by such a decision of the Commissioners, notice of which is served on that person, may appeal the decision to the Appeal Commissioners, in accordance with section 949I of the Taxes Consolidation Act 1997, within 30 days after the date of the notice of that decision.

(5)Any benefit taken by a person other than the person in respect of whose service the benefit arises, under the provisions of any superannuation fund, or under any superannuation scheme, established solely or mainly for persons employed in a profession, trade, undertaking or employment, and their dependants, is (whether or not any person had a right enforceable at law to the benefit) deemed to be a gift or an inheritance, as the case may be, derived under a disposition made by the person in respect of whose service the benefit arises and not by any other person.