Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

Section 15 of this Bill makes provision for the insertion of a new section to provide for the tax treatment of pension lump sums arising from foreign pension arrangements. The current tax treatment is set out in section 790 of the Taxes Consolidation Act, 1997, however this is confined to pension lump sum payments from relevant pension arrangements as defined in this section. Currently, a pension lump sum payment made to an Irish taxpayer resident from a foreign pension arrangement is chargeable to income tax in USC in full in cases where these lump sums do not fall into the definition of a relevant pension arrangement. The proposed new section will provide rules for the treatment of lump sum payments from those overseas pension arrangements and will provide that those lump sums will be treated in the same way as one from an Irish approved pension scheme from 1 January.

The new section will provide that the first €200,000 of pension lump sum payments arising from foreign pension schemes will be tax-free when drawn down by a resident taxpayer and this is the same tax-free limit that applies to a lump sum payment from an Irish pension. This is to make clear how it would be taxed and to make clear that it would be taxed in the same way as a lump sum payment coming from an Irish pension in Ireland.

Where an individual is in receipt of lump sums from Irish and foreign pension funds, he or she will be entitled to a single tax-free amount of €200,000. To clarify the point the Deputy has asked about, up to €200,000 of the lump sum is treated as tax-free.

The portion between €200,001 and €500,000 is chargeable to income tax at 20%. The portion above that is chargeable to income tax and USC ready individual’s marginal rates.