Change to Taxation of Foreign Lump Sums effective from 1 January 2023
Warren & Partners
Warren & Partners is one of Ireland’s leading tax advisory firms to domestic & foreign corporate and private clients.
Previously, Irish Revenue’s view (as set out in a long standing precedent) was that lump sums in commutation of foreign pensions were not taxable in Ireland should the individual come to reside in the country following their retirement.?
Finance Act 2022 introduced new tax legislation regarding the taxation of foreign pension lump sums. With effect from 1 January 2023, the lifetime tax free limit on all pension lump sums which are paid to a resident individual from foreign pension arrangements is €200,000.
With respect to amounts paid over €200,000, the portion of the lump sum between €200,000 and €500,000 is chargeable to income tax at the standard rate (currently 20%), with the balance chargeable at the higher rate (currently 40%). The excess lump sum over €500,000 will also be chargeable to the USC.
Now when assessing whether the €200,000 tax free pension lump sum limit is available (on Irish or foreign pension lump sums) for Irish resident individuals, you are required to take into account prior Irish pension lump sums?and?prior foreign pension lump sums.
An individual who is Irish tax resident but liable to the remittance basis of taxation in Ireland, is only chargeable to tax on the foreign lump sum to the extent that the lump sum is remitted into Ireland.
The matter of the taxation of foreign pension lump sums remains an area where detailed tax advice is required before any action is taken by the taxpayer.
Please contact Tom Mahon Olga Miller David Kehoe Sinead Scanlan Anthony O'Callaghan Shauna Mckay of Warren & Partners with any queries you may have regarding the above.