Brendan Griffin
Question:241. Deputy Brendan Griffin asked the Minister for Finance his views on correspondence (details supplied) regarding taxation of pensions; and if he will make a statement on the matter. [36146/15]
View answerTuesday, 20 October 2015
Questions (241)
Written answers
From the limited details supplied, I am assuming that the individual in this case has an approved minimum retirement fund (AMRF) with the Life Office concerned which she wishes to access on attaining the age of 75 in 2016.
An AMRF is essentially a special restricted type of Approved Retirement Fund (ARF), the purpose of which is to ensure that an individual who wishes to avail of an ARF, but who does not meet the minimum guaranteed pension income for life requirement (€12,700), has a pension "safety net" to provide for the latter years of his/her retirement. Prior to 2015, while the income and gains arising in an AMRF could be drawn down, the initial capital invested (a maximum of €63,500) could not be accessed (except to purchase an annuity) until the owner of the AMRF reached age 75. From 2015 onwards, an individual may draw down a maximum of 4% of the value of an AMRF annually.
When the owner of an AMRF reaches age 75 the AMRF is automatically converted to an ARF and the owner is then free to draw down the monies therein subject to taxation.
I am advised by the Revenue Commissioners that a Qualifying Fund Manager (QFM) who manages an ARF is required under section 784A of the Taxes Consolidation Act 1997, to treat a withdrawal from the fund as a payment of emoluments in the year in which the payment is made and to subject that payment to income tax under the PAYE system. The fund manager is obliged to deduct tax at the higher rate of income tax for the year in which the payment arises (40% for 2016) unless Revenue has issued a certificate of tax credits and standard rate cut-off point for the individual prior to the payment being made. USC would also be payable on any payments at the reduced rates applying to the over 70s (1% and 3% for 2016).
In this context, I am advised by the Revenue Commissioners that the individual in question should apply to her local Revenue Office for a certificate of tax credits and standard rate cut-off point in advance of withdrawing monies from her ARF. This will ensure that any such withdrawal is taxed at the individual's appropriate marginal rate of tax. To that end, she can contact Ms Suzanne Sheahan, Kerry District, Government Offices, Spa Road, Tralee, County Kerry Tel:066-7161000.
It is not possible to state with certainty what rate, or rates, of income tax will apply to amounts that this individual might withdraw from her ARF, as this will be determined by the amount of her income from all sources (including any amount withdrawn from the ARF) and her tax credits for the year or years in question. However, I am informed by the Revenue Commissioners that, for 2016, the first €33,800 of income will be taxed at 20%, with the balance being taxed at 40%.
I am advised by the Commissioners, that in the event that tax is charged in the first instance at the higher rate (in the absence of a tax credit certificate) in circumstances where the standard rate (20% for 2016) applies to some or all of the payment, a taxpayer can apply to Revenue for a repayment of any tax overpaid after the end of the tax year in question.
The individual could, of course, consider staggering the withdrawals from her ARF over a number of years so that tax is restricted to the standard 20% rate on any withdrawal. Indeed, to that end, she might also consider availing of the option to withdraw the maximum allowable 4% of the value of her AMRF in 2015 (which would be subject to tax and USC on the same basis as outlined above).