Michael McCarthy (Cork South West, Labour)
Link to this: Individually | In context | Oireachtas source

171. To ask the Minister for Finance the position regarding his announcement during budget 2014 regarding his intention to abolish top slicing relief on all ex gratia lump sums payments made in respect of retirement or terminations of employment greater than €200,000 or over; if he will clarify this statement in view of the confusion surrounding this decision, outlining exactly if this relief has been abolished entirely and on what payments; and if he will make a statement on the matter. [46060/13]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

On a point of clarification, Finance Act 2013 provided that Top Slicing Relief was abolished with effect from 1 January 2013 on all ex-gratia (discretionary) termination lump sum payments where the non-statutory element of the payment was €200,000 or over. I would also like to make clear that this measure will have no impact on retirement lump sums paid under Revenue approved occupational pension arrangements and under statutory schemes.

Ex-gratia payments can be given in addition to statutory redundancy payments on the termination of the holding of an office or employment, or alternatively on death or disablement grounds.

Statutory redundancy payments are exempt from income tax. Furthermore, there are additional exemption limits for ex-gratia redundancy payments or retirement gratuities in excess of the statutory redundancy amount, which apply to all employees and office holders in receipt of such ex-gratia payments. These are;

- a basic exemption of €10,160 plus €765 per complete year of actual service in excess of the statutory redundancy payment;

Or

- Standard Capital Superannuation Benefit i.e. 1/15th of the person’s annual income (average of the last three years) for each year of employment less any tax-free lump sum which is received or receivable under any approved or statutory pension scheme.

It is open to the taxpayer to choose whichever relief is of most benefit.

The basic exemption from income tax as outlined above can be further increased by up to €10,000 if the person is not a member of an occupational pension scheme. (This can only be claimed if the person has not made any claims in respect of a lump sum retirement gratuity received in the previous 10 tax years.)

Any balance of the ex-gratia payment after the calculation of the exemptions and reliefs is liable to income tax. An additional relief called Top Slicing Relief, which ensures that an individual’s average tax rate for the previous three years applies to such lump sums rather than the marginal rate of tax, is available in relation to this taxable amount. Given the budgetary constraints, the Government has decided to abolish Top Slicing Relief in respect of all ex-gratia payments made on or after 1 January 2014.