Is it possible to get around the €2m Lifetime limit on pensions?

Hi Dan

I have to read up on it more myself. From my understanding, the changes on death applies to PRSA's & RAC's if you died post age 75. It will convert to an ARF in the spouse's name and she has to pay income tax.

The Finance Bill does not contain any inheritance tax exemption for RAC's where the asset is passed to adult children, so they may have to pay 30% tax on receiving the benefit and then it is subject to inheritance tax.

The transitional arrangements is that you have 30 days from the passing of the Act to submit a Benefit Crystallisation Event Declaration.

The advice is mature any PRSA's and/or RAC's before age 75!!


Steven
www.bluewaterfp.ie
 
Hi Steven,

I've got my "need to understand this crazy pensions maze" head on me this morning - so can I just pose one further question about this stuff please?

SBarrett said:
....the changes on death applies to PRSA's & RAC's if you died post age 75. It will convert to an ARF in the spouse's name and she has to pay income tax.
Click to expand...

I had understood that the anomaly that's now being removed just related to unvested PRSAs. What was the position regarding RACs prior to the Finance Bill (FB) and what changes are proposed in the FB in relation to RACs?
 
Hi Dan

I don't know what happened to RAC's that weren't matured post 75. I knew about the PRSA anomaly but never came across is for RAC's. All my clients matured their pensions before then!

I'll come back to you on all changes to RAC's too when I do my update :)

Steven
www.bluewaterfp.ie
 
Changes to PRSA's and RAC's for over 75 year olds
  1. The PRSA or RAC will be deemed to vest for purposes of the Threshold limits on the date of passing the Finance Act, likely to be 20 December 2016.
  2. You have to return a Benefit Crystallisation Event (BCE) Declaration within 30 days of the passing of the Act, chargeable excess tax at 40% will automatically taken from the PRSA or RAC.
  3. Upon death, the PRSA and RAC no longer passes to your spouse tax-free. From the passing of the Act, the pension will change to an ARF. When the spouse draws down the benefit, it will be taxable.
  4. The PRSA or RAC can be matured up to 31 March 2017. If benefits are not taken by that date, no benefits can be taken from the policy.
  5. A PRSA will automatically be subject to imputed distribution from 2017 onwards regardless of whether the policy was matured or not. RAC's are not subject to imputed distribution.
Vested RAC and Capital Acquisitions Tax
For ARF's that are passed to adult children on death, the value of the ARF is taxed at 30% but is not subject to CAT. The Finance Bill does not contain a provision to exempt RAC's that are not matured at age 75. It appears that the value of the RAC will be taxed at 30% and the remainder will then be subject to CAT in the hands of the adult children.

The message from Revenue is very clear, mature your PRSA's and RAC's before your 75th birthday!


Steven
www.bluewaterfp.ie
 
Thanks Steven,

Hope you had a nice weekend (read: don't wreck your head with this one over the weekend!!)

I'm having trouble reconciling these two statements quoted below....

SBarrett said:
(1) Upon death, the PRSA and RAC no longer passes to your spouse tax-free. From the passing of the Act, the pension will change to an ARF. When the spouse draws down the benefit, it will be taxable.
and

(2) For ARF's that are passed to adult children on death, the value of the ARF is taxed at 30% but is not subject to CAT. The Finance Bill does not contain a provision to exempt RAC's that are not matured at age 75. It appears that the value of the RAC will be taxed at 30% and the remainder will then be subject to CAT in the hands of the adult children.
Click to expand...

What I mean is that statement 1 seems to be saying that RACs (for those over 75) are converted to ARFs upon death and statement 2 seems to be saying something else. For both statements to be true, the legislation would need to be saying that RACs are to be automatically converted to ARFs upon death over 75, but somehow not full ARFs. Maybe - that's exactly what is being said?! Do you agree? Is that the intent?
 
Effectively both the PRSA or the RAC will convert to an ARF at 75. This means that any drawdown by the plan owner is taxable as income as per the current rules. On death the spouse "steps into the shoes " of the deceased and takes over the ARF. Amy drawdown by the spouse is taxed as income as per current rules.
On the death of the spouse any value remaining can pass to children but will be subject to tax of 30% and potentially liable to CAT if over the threshold.
 
Conan said:
(1) Effectively both the PRSA or the RAC will convert to an ARF at 75.
and
(2) On the death of the spouse any value remaining can pass to children but will be subject to tax of 30% and potentially liable to CAT if over the threshold.
Click to expand...

Hi Conan,

This is exactly my point. If, as in point 1, the RAC is deemed to be an ARF, the tax treatment in point 2, is non standard ARF taxation - i.e. inconsistent with the regular taxation treatment of ARFs, as set out in the link immediately below......(click on your fund passes to your estate on death).

http://www.irishlifecorporatebusiness.ie/approved-retirement-funds-arf

Hence, my earlier comment.....

Dan Murray said:
.....that RACs are to be automatically converted to ARFs upon death over 75, but somehow not full ARFs!!
Click to expand...
 
Last edited by a moderator:
Dan Murray said:
Thanks Steven,

Hope you had a nice weekend (read: don't wreck your head with this one over the weekend!!)

I'm having trouble reconciling these two statements quoted below....



What I mean is that statement 1 seems to be saying that RACs (for those over 75) are converted to ARFs upon death and statement 2 seems to be saying something else. For both statements to be true, the legislation would need to be saying that RACs are to be automatically converted to ARFs upon death over 75, but somehow not full ARFs. Maybe - that's exactly what is being said?! Do you agree? Is that the intent?
Click to expand...

My understanding is that if it goes to the spouse, it is converted to an ARF and not paid as tax free cash.
If it goes to the adult children of the policy holder, it is subject to 30% tax and then the CAT thresholds. And yes, have the RAC's subject to CAT is outside the normal treatment of ARF's being passed on death to adult children. It looks like another anomaly as it doesn't apply to PRSA's.


Steven
www.bluewaterfp.ie
 
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