Dáil Éireann díospóireacht -
Thursday, 5 Jul 2001

Vol. 540 No. 3

Written Answers. - Tax Code.

Noel Ahern

Ceist:

124 Mr. N. Ahern asked the Minister for Finance if he will clarify the situation with tax exemptions on redundancy lump sums; if exemption applies in all cases; the evidence which is required by the Revenue Commissioners to prove it was a redundancy or an ex gratia payment; if a person has to retire permanently from work to qualify; and if he will make a statement on the matter. [20739/01]

Minister for Finance (Mr. McCreevy)

I am advised by the Revenue Commissioners that redundancy lump sum payments fall into two separate categories, statutory redundancy payments payable under the Redundancy Payments Act, 1967, and ex gratia payments made by an employer to an employee on redundancy.

Statutory redundancy payments are exempt from income tax under the provisions of section 203 of the Taxes Consolidation Act, 1997. Ex gratia payments, that is, the amount paid by an employer over and above the statutory redundancy payments, are chargeable to income tax under the provisions of section 123 of the Taxes Consolidation Act, 1997, subject to exemptions and reliefs available under section 201, and Schedule 3, of the Taxes Consolidation Act, 1997.

Generally, an individual is entitled to the higher of the following exemptions in respect of a first redundancy or retirement payment: the basic exemption of £8,000 plus £600 for each full year of service; the increased exemption whereby the basic exemption may be increased by up to a maximum of £4,000 where an individual is not a member of an occupational pension scheme or irrevocably gives up his or right to receive a lump sum from the pension scheme.

Where an individual is a member of an occupational pension scheme the increased exemption of £4,000 is reduced by: any tax-free lump sum from a pension scheme to which the individual may be immediately entitled; or the present day value at the date of redundancy of any tax-free lump sum which may be receivable by the individual from the pension scheme in the future. Alternatively, an individual may be entitled to relief called the standard capital superannuation benefit – SCSB. This relief generally benefits those with high earnings and long service. It is a relief given for each year of service equal to 1/15th of the average annual pay for the last three years of service to date of leaving less any tax-free lump sum entitlement from the pension scheme.

In addition to the exemptions-reliefs outlined above, an individual may be entitled to what is known as top slicing relief. Effectively, this relief limits the rate of tax payable on the taxable portion of the lump sum to the average rate of tax borne by the individual over the previous five years.

Revenue's Information Leaflet IT 21, entitled Lump Sum Payments on Redundancy/Retire ment, sets out in detail how these reliefs-exemptions are applied. I will forward a copy to the Deputy for his information.

For the purposes of the Income Tax Acts, no distinction is made betweenex gratia payments and non-statutory redundancy payments. Consequently, the question of Revenue requiring evidence as to the nature of the payment does not arise.

It is not necessary for a person to retire permanently to avail of the exemptions and reliefs available under section 201 and Schedule 3 of the Taxes Consolidation Act, 1997.