Darren O'Rourke (Meath East, Sinn Fein)
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129. To ask the Minister for Finance if he is aware that many couples, particularly those over 65 years, have combined incomes slightly higher than the €36,000 tax exemption threshold, and that this threshold has not changed since 2011; if he intends to address this anomaly; and if he will make a statement on the matter. [38268/24]

Jack Chambers (Dublin West, Fianna Fail)
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The age exemption applies for any year of assessment where an individual is aged 65 years or over and his or her total income does not exceed €18,000 per annum. Where an individual is a married person or civil partner and is jointly assessed to tax, the age exemption will apply where either individual is aged 65 or over and where the couple’s total income does not exceed €36,000 per annum. The relevant income thresholds may be increased further if the individual has a qualifying child. The thresholds are increased by €575 in respect of both the first and second child, and €830 in respect of each subsequent child.

Additionally, marginal relief may be available where the individual’s or couple’s income exceeds the relevant exemption limit but is less than twice that amount. Where marginal relief applies the individual or couple is taxed at 40 per cent on all income above the exemption limit to a ceiling of twice the exemption limit. The system of marginal relief ensures that in cases where an individual's or couple’s income rises above the exemption threshold that their net income will not decline, as the 40 per cent income tax rate only applies to the proportion of income above the threshold. Once the income exceeds twice the exemption limit, marginal relief is no longer available and the individual pays tax under the normal tax system. However, where the individual’s or couple’s income is greater than the exemption limit but below twice that limit, the taxpayer is entitled to the benefit of the more favourable treatment between the use of marginal relief or the normal tax system of credits and bands.

I have no plans to increase the age exemption limits. However, in circumstances where an individual or couple no longer benefits from the age exemption or marginal relief they will benefit from the increases to the main personal tax credits in recent Budgets.

The increases to the main personal tax credits in Budget 2024 (€100 increase to the single, employee and earned income credits and a €200 increase to the credit for married couples/civil partnerships) means that the effective entry point to income tax has increased for all taxpayers, including those aged 65 or older. From 2024, the effective entry point to income tax for an individual in receipt of the single person credit, employee/earned income credit and the age credit has increased by €1,000 per annum from €18,975 to €19,975 per annum.

In addition, it is important to take into account that the current tax arrangements for persons aged 65 or older compare favourably with the tax treatment of the generality of taxpayers. Persons aged 65 or over may also avail of the age tax credit, which currently amounts to €245 per year for single persons or €490 per year for married couples or civil partners. Reduced rates of USC also apply for persons aged 70 or older where their total income is €60,000 or less per annum. Social welfare income such as the State Contributory Pension and State Non-Contributory Pension are excluded from the calculation when determining if an individual’s income has exceeded the €60,000 income threshold. Furthermore, the State Contributory Pension and the State Non-Contributory Pension are not chargeable to USC or Pay Related Social Insurance.

The Commission on Taxation and Welfare recommended that age should be removed as a factor for determining the charge to income tax and USC. The report stated that the determination of an individual’s tax treatment based on age narrows the base and breaches the concept of horizontal equity, whereby those with similar income should pay the same proportion of that income in taxes. It also breaches the concept of intergenerational equity. Further details are set out in the Report of the Commission, at the following link - www.gov.ie/en/publication/7fbeb-report-of-the-commission/.

Finally, as part of the Personal Tax Review published on last year’s Budget Day, my Department set out further analysis of the recommendations of the Commission on Taxation and Welfare, including in respect of the age exemption limits. The Report is available at the following link -www.gov.ie/pdf/?file=https://assets.gov.ie/273335/96f70eb1-64e1-4f02-9096-e36f306a048b.pdf#page=null.

Darren O'Rourke (Meath East, Sinn Fein)
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130. To ask the Minister for Finance if he plans to change the tax treatment of pension lump sums in the case where the lump sum is used to pay off debt on a family home (details supplied);; and if he will make a statement on the matter. [38296/24]

Jack Chambers (Dublin West, Fianna Fail)
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Overall, the policy objective for tax relief on pension contributions is to encourage individuals to save for retirement; to help meet a targeted level of supplementary pension coverage and income replacement; and to assist in preventing an over-reliance on State support for citizens in later life. Accordingly, pensions already have their own special treatment within the tax system to encourage these preparations. Ireland operates an Exempt, Exempt, Tax (EET) system. Contributions to pensions (within certain limits) are exempted from income tax, pension fund gains are exempted from income tax, and income from pension drawdown is taxed other than a tax free lump sum.

The scenario outlined by the Deputy involves an individual drawing down a lump sum from pension savings before retirement to pay off certain debts. This is not permitted under the legislation governing the tax treatment of pensions in Part 30 Taxes Consolidation Act 1997, which provides that benefits from a pension, including a lump sum, must be taken on retirement or in other limited circumstances, such as payment of pension benefits to a surviving spouse or civil partner of a deceased member of a pension scheme.

The policy intention behind pension tax reliefs is to encourage the pension saver to provide for income in retirement, rather than to avail of a once off payment, or to use pension savings for other purposes. Any changes to the tax treatment of pensions must be considered in the light of Ireland’s EET pension tax system, which is the most common system in OECD countries. Therefore, I do not currently have any plans to allow pension savers to access their funds tax free before retirement. However, as with all taxation, the rules regarding pensions are kept under ongoing review.