Is the lifetime cap of €200k tax free apply to both pension and redundancy payments?

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CormacH

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Hi. I've been searching through AAM and could not find this answer unfortunately so hopefully someone knows?

If, for example, you have received €100k ex gratia payments during your working lifetime, would this affect the possibility of drawing down €150k as part of a tax free lump sum when accessing your pension? I would have paid tax on some of these ex gratia payments.

Note: the ex gratia payments did not have increased exemptions applied so do not affect the possibility of accessing the tax free lump sum from the pension funds.
 
Regarding ex gratia payments:

There is a €200,000 lifetime cap on the amount of relief any individual taxpayer can claim in respect of a payment taxable under Section 123 (i.e. ex gratia termination payments). This relief is provided for in Section 201 and Schedule 3 TCA.

Section 201(8) TCA provides that the maximum amount of relief available will be restricted to the lower of the relief otherwise available or €200,000.

Regarding pension lump sums:

The aggregate amount of pension lump sums that can be taken tax free is capped at €200,000 (per Section 790AA TCA). The €200,000 limit is a lifetime cap and all pension lump sums taken since 7 December 2005 are taken into account in calculating how much of the €200,000 cap has been utilised when future pension benefits crystallise.

The upshot of all the above is that the reliefs above are separate and that depending on the particular circumstances and decisions taken, an individual could receive €200,000 tax free via ex gratia payments in a lifetime and €200,000 tax free via pension lump sums in a lifetime.

Achieving full utilisation of the €200,000 tax free relief via ex gratia payments is more likely for those with very high earnings and/or long service.

Coming back to the actual (or hypothetical) example, if no pension lump sum waiver has been signed in connection with any termination deal, then the relief under Section 790AA should be still available (i.e. if there is an entitlement to a lump sum of €150k from an occupational pension, notwithstanding that €100k was received tax free on employment termination(s), the €150k is under the €200k limit in Section 790AA and so the €150k should be tax free also).
 
One additional question re this thread please:
I took a TFLS 6 years ago from my DC pension before transferring the balance to an ARF, which I haven’t yet started to draw down. The ARF has grown in value in the intervening years. I am now 60. Can I take a further TFLS now before starting to drawdown the ARF?
 
I thought that you could only take a tax free lump sum from a pension when using it to buy an annuity or investing it in an ARF (and/or when converting a PRSA to a vested PRSA?) but not thereafter?
 
Can I just ask one quick question - it states that the 200K cap is cumulative from December 2005 onwards. What impact does this have on a lumpsum payment prior to this date, say from 2002? Is that exempt?
 
I am due to retire (aged 59) in October 2025 via redundancy.
Redundancy package circa €350k gross.
40 years service, average salary circa €300k PA for last three years.
Circa €1.2m in pension , mix of company and AVC roughly 900k & 300k.

Trying to figure out that by using SCSB method what tax will I pay if I dont waive my right to tax free lump sum from pension or can I get both.
Does moving pension to PRSA make sense . Thanks
 
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