Drawdown options from ARF/AMRF on death

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gnf_ireland

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Hi all,
I have a question for a relative around drawdown of an ARF/AMRF on death. The pension in question is around 200k and is being transferred to a pension in the surviving spouses name. The surviving spouse is 83 years of age. The children are all over 21 years of age (to state the obvious).

The surviving spouse does not necessarily need the money - there is a reasonable level of cash outside the pension for their use. Their only other income is the state contributory pension of around 258 euro a week.

The question is what is the best way for the ARF/AMRF to be drawn down to minimize tax liability for the children when the surviving spouse passes away. I assume it makes sense to draw down income up to the max 20% threshold each year - so roughly 20k each year on top of the pension.

Does anyone know if it’s possible to drawdown any tax free lump sum on transfer of an ARF/AMRF to a spouse - I assume not but just checking.

Is there any tax implications either way that would make sense to draw down at 40% over letting the ARF remain in place until death? Are there any surcharges that kick in that make sense To target not to have the funds passed to children if already transferred to a spouse.
Thanks
 
Not an expert and interested myself....

I wondering if the following applies? (Could be wildly wrong!)

I would say it depends on other assets the children might inherit. Arent ARF taxed differently when passing to children (they don’t form part of CAT)-they are just a flat rate tax of 30%.

Is there room left in each child’s CAT threshold which would mean tax free to that amount?

If already looking like above then would leaving it there and paying 30% “ARF Tax” v 33% CAT (if ARF withdrawn to max each year to sit in bank account) be better??
 
Pension Authority Statement
Benefits payable from AMRF/ARFs can be passed to a spouse or civil partner without payment of CAT or income tax. (A tax rate of 20% applies subsequently on the death of the spouse or civil partner).
Otherwise AMRF/ARFs are treated as if they had been drawn down on death and are subject to income tax @ 30% if inherited by a child over age 21

I have gone a bit more reading on this now I am back in some sort of internet coverage (took me about 6 attempts to send the initial message). I think I have worked out the situation, but the line above on the 20% tax rate confuses me, and struggle to see it listed elsewhere?

Anyone know what this is about ?
 
DublinD said:
I would say it depends on other assets the children might inherit. Arent ARF taxed differently when passing to children (they don’t form part of CAT)-they are just a flat rate tax of 30%.
Is there room left in each child’s CAT threshold which would mean tax free to that amount?
If already looking like above then would leaving it there and paying 30% “ARF Tax” v 33% CAT (if ARF withdrawn to max each year to sit in bank account) be better??
Click to expand...

In this circumstances, the CAT thresholds would not be reached by the children. The major asset (farm), would be inherited by one party and would avail of agricultural relief. The remainder of the assets, after a potential allowance is made for grandchildren, would not hit the 320k threshold per person. The children would be better off if they could avail of the pension funds under CAT, if possible.

I do see your point if the CAT thresholds where maxed out, but this is not the case.

What I was wondering was whether the ARF could be directly transferred to a pension fund of a child without a tax liability, or additional lump sum could be drawn down by the spouse. I guess I already knew the answer, but just wanted to check.

The 30% flat rate tax is pretty fair in the grand scheme of things and would not make sense to attempt to fast track drawdown at 40% Income Tax rate to avail of the CAT allowance.

Thanks for your assistance
 
On the death of the original ARF holder the spouse can "step into the shoes " of the deceased and continue to hold the ARF but with income potentially taxable as normal. On the death of the spouse, any money remaining goes to children as a lump sum but subject to tax of 30%.
It is not possible to transfer any residual cash to the pension fund of any children.
 
gnf_ireland said:
Pension Authority Statement
Benefits payable from AMRF/ARFs can be passed to a spouse or civil partner without payment of CAT or income tax. (A tax rate of 20% applies subsequently on the death of the spouse or civil partner).
Otherwise AMRF/ARFs are treated as if they had been drawn down on death and are subject to income tax @ 30% if inherited by a child over age 21

I have gone a bit more reading on this now I am back in some sort of internet coverage (took me about 6 attempts to send the initial message). I think I have worked out the situation, but the line above on the 20% tax rate confuses me, and struggle to see it listed elsewhere?

Anyone know what this is about ?
Click to expand...
Never understood that one either as it’s not mentioned anywhere on other ARF provider websites etc....unless they mean 20% income tax on withdrawals but that’s standard and could be 40% I guess dependant on amount withdrawn.
 
DublinD said:
Never understood that one either as it’s not mentioned anywhere on other ARF provider websites etc....unless they mean 20% income tax on withdrawals but that’s standard and could be 40% I guess dependant on amount withdrawn.
Click to expand...
Yes this is the part that threw me as well - I just find it strange that the pension authority would have such an error on their website. I might report it and ask for clarification on it ! Thanks again
 
gnf_ireland said:
Pension Authority Statement
Benefits payable from AMRF/ARFs can be passed to a spouse or civil partner without payment of CAT or income tax. (A tax rate of 20% applies subsequently on the death of the spouse or civil partner).
Otherwise AMRF/ARFs are treated as if they had been drawn down on death and are subject to income tax @ 30% if inherited by a child over age 21

I have gone a bit more reading on this now I am back in some sort of internet coverage (took me about 6 attempts to send the initial message). I think I have worked out the situation, but the line above on the 20% tax rate confuses me, and struggle to see it listed elsewhere?

Anyone know what this is about ?
Click to expand...


Prior to 31 March 2012, the rate of charge was the standard rate and tax was collected under the PAYE system. That is the only connection I can find to a 20% rate or it could refer to the old CAT rate when it was 20% which would apply to a child under age 21 receiving the proceeds of an ARF. Otherwise, I have no idea what it refers to. I have checked a couple of technical manuals and can't find any reference to it and I have never heard of it either.


Back to your original question, is the ARF holder gifting her children €3,000 a year? They have to draw down 5% per annum anyway. If they are in receipt of the State pension, this will probably bring them into the tax system (over €18,000).


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
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