Jack Chambers (Dublin West, Fianna Fail)
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Following clarification from the Deputy, the tax treatment of ex-gratia lump sum payments is set out below.

A taxpayer might receive a lump sum payment as part of a redundancy. A liability to tax arises on the amount of the payment that exceeds either the:

• Basic Exemption and increased exemption, if due, or
• Standard Capital Superannuation Benefit (SCSB).

The basic exemption is €10,160 plus €765 for each complete year that a taxpayer worked for their employer. A termination payment will be tax free if it does not exceed the basic exemption.

Additionally, a taxpayer may be entitled to an increase of €10,000 on the basis exemption if: 1. They have not received an amount in excess of the basic exemption in the previous ten years, and,

2. They are not a member of an occupational pension scheme, or, if they are a member of an occupational pension scheme, but they revoke their entitlement to receive a tax-free lump sum from that scheme. The SCSB is a further relief that a taxpayer may be entitled to and is provided in Schedule 3 of the TCA. SCSB is computed at 1/15th of a taxpayer’s average annual pay for the last 36 months in employment. This is then multiplied by the number of complete years of service with the employer. Any tax-free lump sum payments received, or which the taxpayer is entitled to receive, from their work pension, are subtracted from this benefit.

The basic exemption, increased exemption and the SCSB are subject to a lifetime limit of €200,000 and the individual may apply whichever of the three exemptions is most beneficial. This lifetime limit is only applicable to ex-gratia lump sum payments which might arise as part of a redundancy package and if any individual receives an amount exceeding the €200,000, the balance would be subject to income tax.

Section 201 TCA contains the provisions which provide for the basic exemption, increased exemption, and lifetime exemption limit of €200,000, in respect of additional ex-gratia payments which might arise as part of a redundancy.

If a person is in a marriage or civil partnership, his or her entitlement to exemption against a lump sum payment is calculated independently of their spouse or civil partner. This applies whether the person is taxed under joint assessment, separate assessment, or separate treatment.

Revenue's website sets out further information on the tax treatment of lump sum termination payments in the hands of the employee, and that information is accessible at:



With respect to pensions an individual is entitled to take a tax-free lump sum when first drawing down from their pension fund. The rules vary depending on the type of scheme or product an individual has. Occupational pension schemes are subject to a salary and service method of calculating the lump sum, offering a maximum of 1.5 times final salary. Other personal pension products, such as PRSAs and PEPPs, allow an individual to take 25% of their overall pension savings as a tax-free lump sum. The lifetime limit is aggregated across all of an individual’s pension entitlements.

All lump sums are subject to a lifetime tax-free limit of €200,000. Where this limit is exceeded, excess lump sum tax is chargeable between €200,000 and €500,000, at a rate of 20%, and on anything in excess €500,000, at a rate of 40%.

There is also a particular tax treatment for so-called “trivial pensions”. These funds are small pension pots where the total of all funds, after the payment of an individual’s tax-free lump sum, are valued at less than €30,000. Section 781 TCA 1997 provides the legislative basis for the taxation of small or trivial pensions from an occupational pension scheme. Full commutation of the pension – that is, pay out of the individual’s total pension benefits - is allowable in certain limited circumstances.

Where, on retirement and following the payment of any lump sum, the total of all funds available for pension benefits is less than €30,000, Revenue accepts that the payment of a once-off pension to an individual can be made, instead of the purchase of an annuity, if the agreement of the scheme beneficiaries and trustees has been received. The quantum of retirement benefits from all sources must be taken into account when calculating this €30,000 limit. The applicable rates of tax, USC and PRSI are those applicable to any other pension payment.

This option may be offered to all scheme members (including buy-out bond holders), and to holders of Retirement Annuity Contracts (RAC), Personal Retirement Savings Account (PRSA), or Pan-European Pension Products (PEPPs), and may also be applied to residual funds available to secure spouses’, civil partners’ and dependents' pensions.

Full commutation is also permitted by Revenue on triviality grounds where, on retirement, the aggregate pension benefits payable to an employee under all schemes related to an employment do not exceed €330 per annum. Tax on the chargeable part of such payments is at a rate of 10%, under what is known as Schedule D Case IV (in contrast to normal pension payments which are taxable under Schedule E via the PAYE system, in a similar manner to employment income). The treatment may also be offered in the same circumstances to holders of RACs, PRSAs and PEPPs.

The rules relating to trivial pensions are set out in Chapter 7 of Revenue’s Pension Manual which is available here:



Both these trivial pension options are only available at a point where an individual is entitled to draw down benefits from a scheme; that is, where an individual reaches the retirement age set out in the conditions of their scheme, or is entitled to access benefits for other reasons, such as serious ill health.

There are no plans to amend the current tax arrangements.