My understanding is that it’s taxable like any other PAYE income.
My understanding is that it’s taxable like any other PAYE income.Is the excess over €500K also subject to PRSI and/or USC or just income tax?
See my previous (subsequently edited) post - seems like it may be subject to income tax and USC but not PRSI?My understanding is that it’s taxable like any other PAYE income.
I don’t see why it wouldn’t be subject to PRSI if you are under 66.See my previous (subsequently edited) post - seems like it may be subject to income tax and USC but not PRSI?
No, but that's on anything over €2 million (soon to be €2.8 million).Yes, there is that consideration.
But I still wouldn’t continue to contribute if it was relieved @40% on the way in and taxed @52% on the way out.
Would you?
No, as things stand, the standard rate of tax applies to lump sum payments between €201k and €500k.No, but that's on anything over €2 million (soon to be €2.8 million).
No, as things stand, the standard rate of tax applies to lump sum payments between €201k and €500k.
My question is whether or not the €500k figure will rise in line with the increases to the SFT.
If not, then I don’t see the logic of contributing to a pension once you hit €2m - notwithstanding the increased SFT.
government report re the SFT that informed their review published:
Yes, the plan is to cap it at €500k (rather than 25% of the SFT). So €2.8m will still mean €500k under the old rules.I wonder are they going to tweak the taxation of retirement lump-sums.
Currently the first €200k is tax-free, amounts between €201k and €500k are taxable at the standard rate of income tax and anything over €500k is taxable at your marginal income tax rate.
Will the €500k figure remain or will it rise in line with the increases to the SFT?
If that €500k figure doesn’t increase, then I am struggling to see the benefit of continuing to contribute to a pension once it hits €2m. Contributions are relieved @40% but drawdowns at that level will inevitably be taxed @40%, plus USC, plus PRSI (if under 66).
That's a DB pension? People on large DB pensions must have high (even if nominal) funds, clearly they'll benefit from the SFT change, it's being changed for people like them who go past the fund limit because their employer is either in reality or theoretically funding their pension in relation to their salary not in relation to the where the SFT is.It is a positive move. Someone on €130,000, retiring at 60 on €65,000 pension and 1.5 lump sum gets hit with a €58,000 tax bill. While they had decent earnings and a good pension, I don't think they would be consider high earners.
No, originally there was no 25% tax free lump sum on occupational pension schemesAFAIK it was to ensure parity between private and public sector schemes.
The latter gives a TFLS of 1.5x salary on retirement. I assume this was estimated as being equal to 25% of a notional pension fund.
Is it not (typically) better though because the tax break leverages the investment?No, as things stand, the standard rate of tax applies to lump sum payments between €201k and €500k.
My question is whether or not the €500k figure will rise in line with the increases to the SFT.
If not, then I don’t see the logic of contributing to a pension once you hit €2m - notwithstanding the increased SFT.
You'd need a fund of €2m for thatThe remaining €300k of the first €500k, after you've taken €200k tax free.
The effective tax rate on the first half a million is 12%.
It was 25% of the SFT, but the government have been known to break this sort of link in tax before.Will the €500k figure remain or will it rise in line with the increases to the SFT?
Exactly, 20% of €300k is €60k.No, as things stand, the standard rate of tax applies to lump sum payments between €201k and €500k
Based on the other thread in relation to CAT and inheritance, is the tax breaks being given to people with large pension pots a good use of scarce resources?Exactly, 20% of €300k is €60k.
There was no tax on the first €200k. Therefore the tax paid on the first €500k was 12%.
Is that regardless of any income you had in that year? i.e. I work till July and early €40K, retire, take my €200K tax-free is the next €50K still only taxed at the standard rate?Yes (I presume you meant €50K).
Taxation of retirement lump-sums
This page outlines the taxation of an excess lump-sumwww.revenue.ie
I think that the pension lump sum taxation is dealt with in isolation from any income earned in the same year.Is that regardless of any income you had in that year? i.e. I work till July and early €40K, retire, take my €200K tax-free is the next €50K still only taxed at the standard rate?
Yes. Your salary is taxed under schedule E. The 20% taxed pension lump sum is under Case IV Schedule D and is separate.Is that regardless of any income you had in that year? i.e. I work till July and early €40K, retire, take my €200K tax-free is the next €50K still only taxed at the standard rate?
Certainly from my perspective they could not be more different.Based on the other thread in relation to CAT and inheritance, is the tax breaks being given to people with large pension pots a good use of scarce resources?
That benefit largely (maybe completely) vanishes when you consider the 6% imputed distributions on values over €2m.The benefit for the individual is purely in the deferral of the tax and the roll up of gains in the fund.
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