Important Pension Change - Act Now

Budget 2014 reduced the standard fund threshold (SFT) from €2.3m to €2m.

This means that, when an individual accesses their pension benefits, if the value of all pensions held by that individual exceeds €2m, the excess will be subject to an effective rate of tax of up to 70%! 

While a fund of €2m may seem quite large, it in fact equates to an annual income in retirement of around €50,000 so it may affect more pension savers than you would initially imagine.

In a recent survey conducted by Independent Trustee Company, 75% of the advisors polled said that   securing the €2.3m PFT for their clients was of high importance.  There is a window of opportunity available, but you must act quickly.  

Where an individual has existing benefits in excess of €2m at 1^st January 2014, Revenue will allow them to apply for a personal fund threshold (PFT) and that threshold will apply to them instead of the SFT.  The maximum PFT available is €2.3m.  Depending on your clients’ circumstances, it may therefore make sense for them to contribute to their scheme before the end of the year in order to secure a PFT for the full value of their benefits.  Contributions made after 1^st January 2014 cannot be included in the calculation of the PFT.

The key is to act now, before the 31^st December, while the opportunity for your clients is still available. 

For further information, please contact one of our consultants in ITC Consulting:

Barry Kennelly on (01) 6148068 or at barry.kennelly@independent-trustee.com

Jennie Faughnan on (01) 6035140 or at jennie.faughnan@independent-trustee.com

Don't let the CAT relief out of the bag

There is, unfortunately, speculation that the forthcoming Budget will introduce yet another round of increases in the rates of capital taxes.  Not content with a 65% increase in rates from 20% to 33% since 2008, there is a fear that there will be both a further increase in the rates of Capital Acquisitions Tax (CAT) and Capital Gains Tax (CGT), a further reduction in the thresholds and the restriction of the remaining reliefs.

The CAT Rate

For a number of years up to 2008, CAT was charged at 20%.  In the last Budget it was increased to 33% from 30%.  Will it rise again?  Some commentators fear it will, particularly as the rate is still lower than UK inheritance tax at 40% and the rates in other EU jurisdictions. 

The CAT Thresholds

To many, a more important factor than the actual rates is the threshold at which CAT starts to bite.  In 2008 the parent-child Group A threshold was around €520,000 and the CAT rate was 20%.  Now the Group A threshold is €225,000.

So, not only is the rate higher, but it kicks in much earlier and so many more people are caught within its net.  Take the example of a child inheriting €600,000 in 2008 – the tax charge would have been around €16,000.  Now, the tax take would be about €123,000!

It could unfortunately get worse.

The CGT Rate

As with CAT, up to 2008, for a number of years, the principal CGT rate was 20% and now it is up to 33%.  Will it rise again?

Although it is currently not a huge concern for the majority of people, there is recognition that excessively high CGT rates could prove a disincentive to people to sell assets. There is, therefore, a possibility that the rates of CAT and CGT may differ in the future.

There is also a possibility that there could be tiered rates of CGT (and indeed CAT), e.g. CGT rates could be linked to different periods of ownership or level of gains.  There could, for example, also be a new lower CGT rate on the sale of business assets, which would be something to be welcomed. The National Recovery Plan of 2010 suggested some of these changes. 

 

The Reliefs

A further possible change is the restriction of the current CAT and CGT reliefs.  The Commission on Taxation in 2010 suggested restrictions on the reliefs available on transfers of family businesses. These have only been partially introduced, so perhaps they will be implemented more fully, which would further penalise the transfer of businesses to family members.  The National Recovery Plan also suggested a restriction of capital tax reliefs. There is, therefore, a distinct possibility that further changes could be on the way.     

If there is any chance that you or any of your clients are in the process of transferring a business or business asset in the near future, it would be worth doing so before the Budget.  For more information contact Barry Kennelly on barry.kennelly@independent-trustee.com.

Barry Kennelly

Director, ITC Consulting