Tax Free Lump Sum query

eamonneor

Registered User
Messages
13
Hi,
Recently retired and need clarification on treatment of Tax Free Lump Sum
I will have a Tax Free Lump sum of circa €150k.
Can I invest this sum in an ARF type investment product?
How is the annual sum I drawn down treated from a tax perspective ?
CGT or Income tax.

Please advise
Thanks
Eamonn
 
If your tax-free lump sum is €150k, it suggests you have €450k in an ARF already. An ARF is a post retirement product from which you must drawdown a minimum of 4% pa (potentially taxable as income).
The €150k lump sum is tax-free money, so if you are looking to invest it (but not into a pension product), then you might consider Deposits (no risk) or Funds (some investment risk).
 
I think there may be some confusion here. All Eamonn has said is that he will have a tax-free lump sum of €150,000. This might be from a Defined Benefit pension scheme so he might be receiving a pension with the balance of the fund.

The €150k lump sum is tax-free money, so if you are looking to invest it (but not into a pension product), then you might consider Deposits (no risk) or Funds (some investment risk).

I agree with Conan. The €150,000 cannot go into an ARF and even if it could, you'd be mad to do it. This lump sum is tax-free, while any withdrawals from an ARF are taxable.

If you put that €150,000 on deposit you'll pay DIRT tax on any interest although at the moment you'll get very little interest. You won't pay tax on withdrawals - just the interest.
If you put it into funds, it depends on what type of funds. Funds issued by life insurance companies would attract a 1% levy at the outset and then Exit Tax on growth only, either when you make a withdrawal or every eighth anniversary, whichever happens first. Direct share purchases would be subject to Capital Gains Tax when you sell, but again only on the gain you make, with an annual exemption limit.

Regards,

Liam
www.ferga.com
 
Hi,
Thanks for the inputs.
I have a defined contributions pension and intend to buy an ARF for €450k.
I do not want the Tax Free sum (€150k) to just sit on deposit.
My intention was to seek a suitable investment product/fund that could :
a) give me some growth opportunity.
b) cover annual managements costs .
c) is tax efficient.
d) allowed for 5-10% withdrawals annually.

Is this realistic/

Thanks
Eamonn
 
Obviously there are a wide range of investment options:
- Deposits
- Government Savings
- Investment Funds (wide variety)
- Direct Equities
- REITs
- etc etc etc

But it comes down to potential risk versus potential return. Clearly Deposits will give a very low return (particularly when you deduct DIRT), but you have security. So are you more focused on a return of your money or a return on your money?
If you are looking for a higher rate of return then you will have to take some investment risk. That risk may pay off or it may not.
You also need to consider your investment time horizon. If you are prepared to take say a 7 to 10 year time perspective then perhaps a mix of Deposits and Equities (either a direct portfolio or an Equity Fund) might work. But investments in higher risk instruments require you to be able to live with the ups and downs of markets. So if you had a paper loss of 10% or 20% at a point in time, would you look to cash out?
Most investments will involve a level of taxation - DIRT, Income Tax, Capital Gains Tax, etc. Generally Government Savings (incl Prize Bands) are paid tax free, but again returns are very low.
So I would ask:
- what level of return are you seeking?
- what is your investment time horizon?
- are you prepared to take investment risk to possibly achieve your desired return ?
- are you more concerned with capital security than capital return?
- what retirement income and other assets do you have?
 
Hi ,
My status is that I have recently finished work.
I have circa €650k in a pension fund that I have not drawn down.
Plan is to buy an ARF €450k , AMRF €63K an take Tax free Sum of €150k.
I'm not eligible for the state pension until Jan 2025.
I own my own house and have no debts.
I have cash reserves to last for 6-9months.
In addition I have €120k on deposit.
I am looking to invest my tax free sum into a fund for 5-10 years that would allow for some growth to cover AMC and allow for flexible withdrawals.

Comments welcome.

Thanks
Eamonn
 
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