Dáil Éireann Debate, Monday - 11 September 2023
475. Deputy Steven Matthews asked the Minister for Finance if his attention has been drawn to an anomaly (details supplied) in the approved retirement fund legislation whereby upon the death of an ARF holder, foster children are treated under the others category rather than the child category; and if he will make a statement on the matter. [38763/23]
View answerAs the Deputy may be aware, as a general rule, where there is a distribution from an Approved Retirement Fund (ARF) on the death of an ARF holder, this will trigger charges to both Income Tax and Capital Acquisitions Tax (CAT). The distribution is treated as income of the ARF holder for the year in which he or she dies and will come within the charge to Income Tax. The Income Tax payable will be payable on behalf of the deceased ARF holder. CAT will be payable by the beneficiary on the value of the distribution received by him or her to the extent that it exceeds the applicable Group threshold.
The treatment is subject to certain exceptions, including in cases where the beneficiary was a child of the ARF holder.
If the beneficiary was a child of the ARF holder and aged under 21 years of age on the date of death:
• The amount distributed from the ARF to the beneficiary will be exempt from Income Tax, and
• The value of the inheritance received by the beneficiary will be subject to CAT, payable by the beneficiary, at the rate of 33% to the extent that this amount exceeds the Group A threshold (€335,000).
If the beneficiary was a child of the ARF holder and aged 21 years of age or over on the date of death:
• The amount distributed from the ARF to the beneficiary will be charged to Income Tax at the rate of 30%, payable on behalf of the deceased ARF holder, and
• The value of the inheritance received by the beneficiary will be exempt from CAT.
Where the beneficiary of such a distribution has been fostered by the deceased ARF holder, the beneficiary will not be considered a “child” of that individual for this specific tax treatment purposes, which is the point raised in the Deputy's question.
I am aware of this differential treatment and my officials are examining the issue. In this context it is worth noting the Commission on Taxation and Welfare have recommended that assets held within an ARF should be treated for inheritance tax purposes in the same way as other assets where inherited by anyone other than the individual’s spouse, and therefore subject to both Income Tax and CAT.
