Section 790AA Taxation of lump sum payments in excess of the lump sum limit
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Amendments
Section 790AA inserted by Finance Act 2006 section 14(1)(f)(ii) from 7 December 2005.
(1)(a) In this section―
"excess lump sum" has the meaning assigned to it by paragraph (e);
"lump sum limit", for a year of assessment, means―
(i) for the years of assessment 2005 and 2006, €1,250,000, and
(ii) for a year of assessment (in this paragraph referred to as the "relevant year") after the year of assessment 2006, the amount equivalent to the amount determined by the formula―
SFT x 1
4
where―
SFT is the standard fund threshold, within the meaning of section 787O(1), for the relevant year;
"relevant pension arrangement" means any one or more of the following―
(i) a retirement benefits scheme, within the meaning of section 771, for the time being approved by the Revenue Commissioners for the purposes of Chapter 1,
(ii) an annuity contract or a trust scheme or part of a trust scheme for the time being approved by the Revenue Commissioners under section 784,
(iii) a PRSA contract, within the meaning of section 787A, in respect of a PRSA product, within the meaning of that section,
(iv) a qualifying overseas pension plan within the meaning of Chapter 2B,
(v) a public service pension scheme within the meaning of section 1 of the Public Service Superannuation (Miscellaneous Provisions) Act 2004,
(vi) a statutory scheme, within the meaning of section 770(1), other than a public service pension scheme referred to in paragraph (v);
"specified date" means 7 December 2005.
(b) In this section, "administrator", in relation to a relevant pension arrangement, means the person or persons having the management of the arrangement, and in particular, but without prejudice to the generality of the foregoing, references to the administrator of a relevant pension arrangement include―
(i) an administrator, within the meaning of section 770(1),
(ii) a person mentioned in section 784, lawfully carrying on the business of granting annuities on human life, including the person mentioned in section 784(4A)(ii), and
(iii) a PRSA administrator, within the meaning of section 787A(1).
(c)(i) For the purposes of this section, a reference to a lump sum is a reference to a lump sum that is paid to an individual under the rules of a relevant pension arrangement by means of commutation of part of a pension or of part of an annuity or otherwise.
(ii) Without prejudice to the generality of subparagraph (i), the reference in that subparagraph to the commutation of part of a pension or of part of an annuity, shall, in a case where an individual opts in accordance with section 772(3A) or, as the case may be, section 784(2A), be construed as a reference to the commutation of part of the pension or, as the case may be, part of the annuity which would, but for the exercise of that option, be payable to the individual.
(d) For the purposes of this section, references to a lump sum that is paid to an individual include references to a lump sum that is obtained by, or given or made available to, an individual and references to a lump sum which was, or has, or had been paid to an individual shall be construed accordingly.
(e) For the purposes of this section, the excess lump sum, if any, in respect of a lump sum that is paid to an individual on or after the specified date (in this paragraph referred to as the "current lump sum") shall be―
(i) where no other lump sum has been paid to the individual on or after the specified date, the amount by which the current lump sum exceeds the lump sum limit, and
(ii) where before the current lump sum was paid, one or more lump sums had been paid to an individual, on or after the specified date (in this paragraph referred to as the "earlier lump sum"), then―
(I) where the amount of the earlier lump sum is less than the lump sum limit, the amount by which the aggregate of the amounts of the earlier lump sum and the current lump sum exceeds the lump sum limit, and
(II) where the amount of the earlier lump sum is equal to or greater than the lump sum limit, the amount of the current lump sum.
(f) For the purposes of paragraph (e)―
(i) where―
(I) the current lump sum is paid in a year of assessment (in this subparagraph referred to as the "relevant year") after the year of assessment 2006, and
(II) the earlier lump sum was paid before the relevant year,
then the amount of the earlier lump sum (and where the amount of the earlier lump sum is the aggregate of the amounts of 2 or more lump sums, then the amount of each of those lump sums) shall be adjusted to the amount equivalent to the amount determined by the formula―
A x B
C
where―
A is the amount of the earlier lump sum,
B is the lump sum limit for the relevant year, and
C is the lump sum limit for the year of assessment in which the earlier lump sum was paid,
and
(ii)(I) a lump sum (in this subparagraph referred to as the "first-mentioned lump sum") shall be treated as paid before another lump sum (in this subparagraph referred to as the "second-mentioned lump sum") if the first-mentioned lump sum is paid before the second-mentioned lump sum on the same day, and
(II) a lump sum shall not be treated as paid at the same time as one or more other lump sums and, where but for this subparagraph they would be so treated, the individual to whom the lump sums are paid shall decide on the order in which they are to be deemed to be paid.
Amendments
Note: "Standard fund threshold" is €5,418,085 for the tax year 2010 by virtue of Finance Act 2011 section 19(6).
(2) Subject to subsection (4)―
(a) where a lump sum is paid to an individual on or after the specified date, the excess lump sum, if any, shall be regarded as a payment to the individual of emoluments to which Schedule E applies, and, accordingly, the provisions of Chapter 4 of Part 42 shall apply to any such payment, and
(b) the administrator of a relevant pension arrangement shall deduct tax from the payment at the higher rate for the year of assessment in which the payment is made unless the administrator has received from the Revenue Commissioners a certificate of tax credits and standard rate cut-off point or a tax deduction card for that year in respect of the individual referred to in paragraph (a).
(3) Subsection (2) of section 787G shall apply in respect of any income tax, being income tax deducted from an excess lump sum by virtue of subsection (2) of this section, by an administrator of a relevant pension arrangement of a kind described in paragraph (iii) of the definition of relevant pension arrangement in subsection (1)(a), as it applies to income tax referred to in subsection (2) of section 787G.
Do I have to allow the deduction of tax from a lump sum from my PRSA?
(3) As the beneficial owner of PRSA, you must allow deduction of tax from a lump sum payment made to you by the administrator. If the PRSA has insufficient assets to pay the tax, the tax is a debt owed to the administrator by you (or your personal re...
(4) Where a lump sum is paid to an individual, on or after the specified date, under the rules of a relevant pension arrangement of a kind described in paragraph (iv) of the definition of relevant pension arrangement in subsection (1)(a), the excess lump sum, if any, shall be charged to tax under Case IV of Schedule D for the year of assessment in which the lump sum is paid to that individual.
(5) Subsections (2) and (4) shall not apply to a lump sum that is paid to a widow or widower, children, dependants or personal representatives of a deceased individual.
Do these tax rules apply to a lump sum paid to a dependant or personal representative on death?
(5) The rules relating to PAYE taxation (see (2)) and taxation under Schedule D case IV (see (4)) do not apply to a lump sum paid to widow, widower, child, dependant or personal representative of a deceased individual.
(6) Section 781 shall have effect notwithstanding the provisions of this section.
