€200,000 exemption for retirement due to disability

Brendan Burgess

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A friend of mine has brought this to my attention. She has been out of work for about a year and is unlikely to return to work. Not sure yet. Her employer is generous and might make a redundancy payment. When I was trying to work out how much of it would be tax-free I came across the following which I had not been aware of before:

5.4 Payments made either on the death of, or on account of injury to or disability of, the holder of an office or employment

"Under section 201(2)(a) TCA 1997, payments made in connection with either

a) the termination of the holding of an office or employment on the death
of the holder, or
b) made on account of injury to or disability of the holder of an office or
employment,
are relieved from the charge to income tax. Note the payment must be
chargeable as a payment on retirement or removal from office in accordance
with section 123 TCA 1997 and the payment must be made on account of the
death, injury to or disability of the holder of the office or employment which
resulted in the termination of that office or employment.
With effect from 27 March 2013 (the date of passing of Finance Act 2013)
such payments are subject to an exemption limit of €200,000."


Are there any snags to watch out for here?

1) Presumably if her doctor and the company's doctor agree that she can't return to work, then they can make the payment free of tax. But they report it to Revenue. In theory, Revenue could query it, but even if they did, her absence from work would probably mean that they wouldn't challenge it.
2) She would presumably be entitled to Disability Benefit or Invalidity Pension
3) I presume that if she gets a Disability Payment she can't receive Statutory Redundancy? But that probably doesn't matter too much as one way or the other, it's a cost to the employer.
4) The disability was not incurred at work. I presume that doesn't matter?
5) She might recover but she is more likely to work in a less senior role on a part-time basis if she does return to employment.

Brendan
 
Brendan,

If your friend has the appropriate PRSI contributions and medical certification, she can apply for illness benefit or Invalidity Pension. If she is deemed medically unable to work again, she could apply directly for invalidity pension.

The tax treatment of her redundancy would have no bearing on eligibility for a SW payment.
 
Anyone know what the is required to qualify for this €200k tax free allowance? What is the procedure?
 
Self assessment provisions apply - I'd suggest getting a copy of some medical report stating that the person was unable to work.
 
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