Budget 2014 – Pensions, Inheritance Tax and Saving

The good news is that the tax incentives supporting pension planning remain

Good news #1: Marginal rate income tax relief retained on pension contributions
Good news #2:  No changes to the €200,000 tax free retirement lump sum limit
Good news #3: Earnings cap of €115,000 for tax relief purposes retained on contributions to PRSAs, Personal Pensions, and employee/AVC contributions to occupational pension schemes
Good news #4: No change to ARF and vested-PRSA minimum drawdown requirement, or the requirement to set aside €63,500 in an AMRF or used to purchase an annuity, or a guaranteed pension income for life of €12,700.

Some bad & then good news: The Pensions Levy will be increased from 0.6% to 0.75% in 2014 and then reduced to 0.15% in 2015.

Standard Fund Threshold as expected reduced to €2m.
For those with defined benefit pensions the capitalisation factor of 20 will be used for the purposes of calculating the individual’s PFT at 1st January 2014.Those who already have a PFT don’t need to do anything as their existing PFT will continue to apply. The current valuation factor of 20 will be replaced with a range of factors depending on age for defined benefit entitlements accrued from 1 January 2014 onwards. These proposed new factors vary from 37 for those aged 50 at the point of retirement to 22 for those aged 70.

Capital Acquisitions Tax (CAT)
There has been no change to the CAT rate of 33% or to the existing CAT thresholds.

However it is an area that needs highlighting as far too many people do not realise that successive changes made to the CAT rate and thresholds in recent budgets will mean a hefty tax liability.

Take the example of a child inheriting €600,000 in 2008 – the tax liability would have been €16,000.  Today the tax liability is over 7 times as much at a hefty €123,000.

We have solutions to deal with this liability for

  • Parents who wish to fund for their children’s tax bill in the event of their death.
  • Adult children who will have an inheritance tax bill on the death of their parents.
  • Business owners who wish to ensure the survival of their business when they pass it on to the next generation.

Exit Tax and Deposit Interest Retention Tax (DIRT)

At present the exit tax rate on life assurance policies effected on or after 1 January 2001 (known as gross roll-up policies) is 36% for individuals and applies to gains once a chargeable event occurs. This rate will increase to 41% for chargeable events after 1st January 2014.The Government has raised DIRT on savings to 41%. The previous rates were 33% (where payments were made annually or more frequently) and 36% (where payments were made less frequently than annually).

ACTION – Contact our office to help you plan for 2014

Tel: 021 427 1687

Click here to view the Budget Tables



About Bill Anderson

Bill is a qualified financial adviser (QFA) and also a qualified accountant (FCCA).
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