Thousands of high earners face tax bill on pension pot

DOMINIC COYLE

Thousands of high-paid workers face a major tax bill over their failure to notify Revenue that their pension pots are in excess of new current limits.

The Standard Fund Threshold is an upper limit on the amount that can be accrued in a pension fund using tax relief. When first introduced in 2005, it stood at €5 million. That was cut to €2.3 million in 201 0 and reduced further to €2 million at the start of 2014.

Anyone who already had a pension pot of more than €2 million, but below €2.3 million was invited to apply to the Revenue for a Personal Fund Threshold. This effectively meant they would no longer be allowed add to the pension pot but they would not be penalised for being above the new limit.

Deadline expired

Revenue granted people 18 months to apply for a personal fund threshold, if applicable, with the deadline expiring last Thursday. However, by that deadline, only 600 people had applied – just a fraction of the number expected.

While precise figures are not available, industry sources reckon somewhere between 3,000 and 4,000 people could be affected by the new limits.

With salary levels in the upper echelons of the public service and in semi-states publicly available, Revenue is confident that it has reasonable insight into the numbers that should be applying for a personal threshold under the new limit.

Given the surprisingly low numbers, Revenue has granted an extension to the end of the month but further extensions are not expected.

It is understood that a number of people approached Revenue in the run-up to the July 2nd deadline to report that they were having difficulty getting accurate figures from their pension providers or HR departments to determine whether they need to act.

Revenue is understood to have decided it would be unfair to hold a firm line when people were actively endeavouring to source the information required. With people moving jobs more frequently – and between the private and public sector – there are added complications in totting up pension pots from different sources.

Deducted

In the absence of a personal fund threshold, Revenue will charge 41 per cent tax on any amount in excess of the new €2 million limit. The money will be paid by pension fund managers and then deducted from the individual.

When the remaining 59 per cent of the excess is drawn down as a pension, it will be subject to tax at the marginal rate. That means anyone failing to contact the revenue could face an effective tax rate of up 65 per cent on anything over the €2 million threshold, before taking universal social charge and PRSI into account.