Written Answers. - Parliamentary Debates - Houses of the Oireachtas

Questions— 14 February 2012. Written Answers
form, its suitability and ease of completion. It is Revenue’s intention to complete the consultation
process as quickly as possible and to have the Form 12S available for completion as a
matter of urgency.
141. Deputy Pat Deering asked the Minister for Finance if he will consider a special higher
tax rate for those in receipt of retirement packages greater than €200,000.00. [7609/12]
Minister for Finance (Deputy Michael Noonan): It is not clear from the question whether
the Deputy’s reference to “retirement packages” is to retirement lump sums or to the combination
of lump sum and pension. An individual in receipt of pension income is liable to tax on
that income at his or her marginal rate of income tax. I have no plans to change these arrangements.
I am informed by the Revenue Commissioners that two separate tax treatments can
apply to lump sum payments depending on the nature of the lump sums paid to a retiring
individual. (These rules apply equally to all employees — public and private sectors). The
details of these treatments are set out hereunder. It should be noted that the lifetime limits on
the amounts of lump sums that can be paid tax-free under pension arrangements or as termination
payments were reduced to €200,000 in last year’s Finance Act. I have no plans for further
changes in this area at this time.
Retirement lump sums paid under pension arrangements
The following arrangements apply to retirement lump sums paid under Revenue approved
pension arrangements:
• Lump sum amounts up to €200,000 are paid free of tax. They are also paid free of
Universal Social Charge (USC).
• The portion of a lump sum between €200,001 and €575,000 is taxed on a ring-fenced
basis at 20%. (This means that no tax credits or other tax reliefs can be set against
this portion of the lump sum.) No USC is chargeable.
• Any amount of a lump sum in excess of €575,000 is taxed at the individual’s marginal
rate of tax (credits and other tax reliefs are available). In this instance, USC is chargeable
on the excess.
These amounts are lifetime amounts with prior lump sums aggregating with later lump sums.
Termination lump sums
Section 201 of the Taxes Consolidation Act 1997 and Schedule 3 to that Act set out the
legislation in relation to the exemptions that apply to ex-gratia payments including retirement
gratuities, and the taxation of any balance after applying these exemptions. The same rules
apply to all employees and office holders in receipt of ex-gratia payments.
Statutory redundancy payments are exempt from income tax. In addition, there are
additional exemption limits for ex-gratia redundancy payments or retirement gratuities in
excess of the statutory redundancy amount, namely—
• a basic exemption of €10,160 plus €765 per complete year of actual service in excess
of the statutory redundancy payment;
Or
• Standard Capital Superannuation Benefit i.e. 1/15th of the person’s annual income
(average of the last three years) for each year of employment less any tax-free lump
sum which is received or receivable under any approved or statutory pension scheme.
It is open to the taxpayer to choose whichever relief is of most benefit.
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