Tax-free Lump sum pension conundrum

[Cooler_box]

Can someone please clarify what the tax liability is on inherited lump sum pension payments? I'm hearing conflicting views from people. Is one liable for both IHT @ 33% and income tax @ 40%? I find it hard to believe that Revenue would take more than the beneficiary is due.

 

[AAAContributor]

Is one liable for both IHT @ 33% and income tax @ 40%?

If an Approved Retirement Fund (ARF) is left to a stranger, then the administrator of the fund will deduct tax at the deceased's marginal rate + USC + PRSI (if applicable). The recipient will then be liable to Capital Acquisitions Tax (CAT) on the net proceeds.

lump sum pension payments

It depends on what exactly you mean and what the circumstances are but you should find the answer here:

 

[Cooler_box]

I did see that article. It appears to suggest the beneficiary gets 27% and revenue get 73%. It seems not only excessive but unfair?

 

[Gordon Gekko]

I don’t think it’s unfair. They’re pre-tax monies, so if a stranger gets it, the monies are taxed on the way out and then subject to CAT. Fair enough in my view.

 

[Cooler_box]

Yes, I understand one has to pay taxes but why two taxes on the same asset? Revenue are more of a “stranger” than the beneficiary who was in a committed relationship with her partner and she gets only 1/3rd of her inheritance? Doesn’t sound fair to me.

 

[Dr Strangelove]

To help answer the question, if the residual ARF is left to a child over the age of 21 it is taxed at a flat 30% and there is no CAT.

 

[Cooler_box]

It was left to the Disposer’s long term partner but they weren’t married.

 

[Dr Strangelove]

It was left to the Disposer’s long term partner but they weren’t married.

Then unfortunately the pretty penal tax treatment as above will apply.

It’s sadly too late now in this case, but when it comes to inheritance people really should get married to their long-term partner.