Ciarán Lynch (Cork South Central, Labour)
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50. To ask the Minister for Finance the effect of changes to top slicing relief as applied to a redundancy package being offered to a person (details supplied); and if he will make a statement on the matter. [49637/13]

Michael Noonan (Limerick City, Fine Gael)
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Ex-gratia payments can be made 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 discretionary 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 include:

- 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 is available in relation to this taxable amount. Given the budgetary constraints and the nature of the 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 of 41 per cent, the Government has now decided to abolish Top Slicing Relief in respect of all ex-gratia discretionary payments made on or after 1 January 2014.

This measure will have no impact on retirement lump sums paid under Revenue approved pension arrangements and under statutory schemes.