Joe Carey
Question:125. Deputy Joe Carey asked the Minister for Finance his views on correspondence (details supplied) regarding pension legislation; and if he will make a statement on the matter. [35533/16]
View answerThursday, 17 November 2016
Questions (125)
Written answers
I am informed by Revenue that an Approved Retirement Fund (ARF) is a post-retirement investment product into which an individual may opt to transfer their pension fund on retirement as an alternative to annuity purchase. The beneficial ownership of the assets in an ARF vests in the individual, and the ARF structure allows those personal assets to be segregated from the individual's other personal assets in order that the ARF taxation treatment can apply. In that regard, section 784A of the Taxes Consolidation Act (TCA) 1997, provides that income or gains arising while the funds are invested in an ARF are exempt from tax. Withdrawals from an ARF are generally taxable at the owner's marginal rate of tax. ARFs are managed by Qualifying Fund Managers, mainly insurance companies, banks and stockbrokers.
Under the Double Taxation Treaty between Ireland and the United Kingdom, in common with double taxation agreements generally, a taxing right in respect of income and capital gains from immovable property is given to the Contracting State (Ireland or the UK as appropriate) in which the property is situated. As there is no specific exemption for ARFs in the treaty, ARFs with investments in UK property are liable to tax in the UK on the income and gains arising from such property. However, Article 14A of the treaty provides an exemption in relation to income and gains derived by a resident of one Contracting State from immovable property situated in the other Contracting State in certain circumstances. This arises where the competent authority of the first State certifies that the income and gains are tax exempt in that State "by reason of the provisions in the laws of that State which afford relief from taxation to charities and superannuation schemes, as such, or to insurance companies in respect of their pension business ". An ARF must, therefore, be either a superannuation scheme or pension business of an insurance company in order to qualify for the exemption under Article 14A.
As outlined above, ARFs are not superannuation schemes and, therefore, it is only where they come within the scope of "insurance companies in respect of their pension business" that they are covered by Article 14A. I am advised by Revenue that subsection (5) of section 784A of the TCA 1997 specifically extends the scope of references to the pension business of insurance companies to include ARFs provided by such companies. However, it should be noted that such ARFs are exempt under Article 14A not because they are ARFs, but because they form part of the pension business of such companies. I understand from Revenue that HM Revenue and Customs considered whether they were in a position to extend the benefits of Article 14A to all ARFs, but concluded that as ARFs are not superannuation schemes, per se, they are outside the scope of the treaty other than where they fall within the "insurance company" element referred to above.
As regards Personal Retirement Savings Accounts (PRSAs), the Finance Bill 2016 contains provisions to stop PRSAs being used for tax avoidance purposes. The avoidance concerned involved benefits never being taken from a PRSA so that it never "vests" with the result that certain taxes never applied and a more favourable tax treatment was afforded the PRSA assets on the death of the beneficial owner. To counter this avoidance, the Finance Bill provides that where PRSA benefits have not commenced by the date of the owner's 75th birthday (as envisaged by the TCA 1997), such benefits are deemed to commence (i.e. the PRSA is deemed to vest) on that date.