Taxes Consolidation Act 1997 section 788

Capital element in certain purchased annuities

Section 788 provides that the capital element of payments under a purchased life annuity is exempt from income tax, with only the balance treated as taxable income.

• A purchased life annuity is a life annuity bought for money or money's worth in the ordinary course of a business of granting annuities on human life; the capital portion of each annuity payment is not treated as an annual payment and is therefore exempt from income tax.
• The capital proportion of each annuity payment is constant and is determined by comparing the purchase price of the annuity with the actuarial value of the total annuity payments; where contingencies other than the duration of a human life affect the annuity, the proportion is determined on a just basis.
• Annuities connected with pension arrangements, retirement funds, PRSAs, PEPPs, wills or settlements, or bought in recognition of past services are excluded from the relief.
• Where the payer of an annuity has not been notified of the capital element, income tax must be deducted from the full payment as if no capital element existed.