Over the last few weeks we have been giving a pensions update to advisors at the joint LIA/ITI events. Some of the common queries that were consistently raised at the events revolved around the Personal Fund Threshold (PFT). Some of the queries raised are good examples for the basis of calculating a PFT. I will be discussing some of these over the next few blog posts.
The first query put to me was; if you value a PFT on a gross basis and the asset is subsequently sold with the debt repaid, can you make further contributions up to the PFT level?
The allowance available under the PFT legislation is an extremely valuable asset. Say you are granted a PFT for €3.3million, this equates to a €410k reduction in your tax bill. Whilst the allowance is granted based on the value of assets held as at 7th December 2010, there is no requirement that those assets should continue to be held. Thus, by the time you retire, your Fund could comprise of entirely different assets.
For example, a property worth €3.3million on 7th December 2010 could have €2million in debt attaching to it. Whilst a PFT of €3.3million could be applied for, the actual Fund is, in practice, worth €1.3million. If that asset is disposed of today and the debt is paid off, it becomes clear that the Fund is €2million below the PFT. This can then be built up with further contributions.
It should be noted that Revenue have recently issued a letter stating that in their view, PFTs should be valued on a net basis. We are aware of a number of applications that proceeded on a gross basis and await, with interest, the outcome of those.
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