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How to Reduce your Income Tax Bill

How to Reduce your Income Tax Bill

 

Every year thousands of people across Ireland use their pension as a great way of reducing their tax liability. Not only is contributing to a pension the most tax-efficient way to claim tax back from Revenue, it is also the most effective method of growing your wealth for retirement.

 

If you feel you are paying too much tax, the good news is that you can claim tax relief and you may even be entitled to a refund of some of the Income Tax you paid in 2022/23.

 

1. Tax relief on contributions – You can claim tax relief on contributions at your higher rate of income tax, 20% tax relief for lower earners and 40% tax relief for higher earners on all pension contributions.

2. Tax free growth – You do not pay tax on investment growth within your pension fund (No CGT, DIRT, or income tax).

 

Tax Relief illustrations applicable to you

 

 

How to Reduce your Income Tax Bill - Tax Saving Opportunities for the following

 

Pension Contribution Limits

 

There are annual limits on the amount you can contribute to your pension while receiving tax relief. Contributions are limited by your age and income level, and full tax relief within these limits may be obtained. The maximum amount of earnings allowable for calculating tax relief is €115,000 per year.

 

Maximum Allowable Contributions | How to Reduce your Income Tax Bill

 

Standard example:

Fiona is 45 and earns €60,000 per year. The maximum she can contribute to her pension is 25% of €60,000, which is €15,000. In this example, Fiona is in the higher tax bracket, and has a marginal rate of tax at 40%.

 

This means she can claim 40% tax relief (€6,000) back from the state on all her contributions, and will only being paying a net amount of €9,000, while realizing the total €15,000 contribution into her pension.

 

Complete the form below | How to claim tax relief via your pension!

 

 

If you are Self Employed

Paying too much tax

 

If you are self-employed you must calculate your tax liability and make a payment by 31 October 2023 (or 15 November 2023 for ROS users) in respect of your:

1. Final Tax Assessment for 2022;

2. Preliminary Tax for 2023.

 

You can reduce your 2022 Final Tax liability and your 2023 Preliminary Tax liability by making contributions to a Personal Pension Plan or PRSA and electing to backdate the tax relief to 2022.

 

Example:

Rob is self-employed, aged 45 years, and his Net Relevant Earnings for 2022 were €80,000. He has paid €15,000 Preliminary Tax in 2022 and his total tax bill for 2022 is €22,000. This leaves him owing €7,000 for 2022. He does not currently pay pension contributions. The two scenarios below show just how a lump sum pension contribution can save Rob lots of money!

 

Self Employed Tax Relief Calculation

 

 

If you are a Company Director

 

If you are a Proprietary Director (i.e. a director who owns or controls more than 15% of the shares in your company), you are obliged to file self-assessment tax returns by 31 October 2023 (or 15 November 2023 for ROS users) in respect of last year, even if all of your income is taxed under the PAYE system.

 

If your income includes non-PAYE income you must pay any balance of Income Tax, PRSI and USC outstanding from last year. You will also need to consider paying Preliminary Tax for the current year.

 

You can reduce your 2022 total tax liability and you may even receive a refund from Revenue. This can be achieved by personally making a Lump sum pension contribution 31 October 2023 and also by this date electing to backdate the tax relief to 2022.

 

Example:

Anne Marie is a proprietary director i.e. a director who owns or controls more than 15% of the shares in her company. She paid Income Tax at the 40% rate in 2022. She makes a pension contribution of €20,000 by 31 October 2023, which is within the age-related limits allowed. With her return of income for 2022 she informs her local tax office by 31 October 2023 of this payment and of her desire to backdate the tax relief on this to 2022. She is entitled to the following refund:

 

Co. Director Tax Relief Calculation

 

What type of pension plan?

 

Your company can contribute to an occupational pension scheme or PRSA on your behalf, in respect of your income from your company. You may also make Additional Voluntary Contributions (AVC’s), a PRSA AVC or even contribute to another PRSA plan of your choice if the company is already paying into the occupational pension on your behalf  (subject to scheme rules).

 

If your company does not contribute to an Occupational Pension arrangement or PRSA on your behalf, you can make contributions to a Personal Pension plan or a PRSA plan in respect of your income from your company.

 

If you are an Employee

 

If you feel you are paying too much tax, the good news is that you may be entitled to a refund of some of the Income Tax you paid in 2022 by making a lump sum contribution to a Personal Pension, PRSA or PRSA AVC, depending on your employment circumstances, by 31 October 2023 (or 15 November 2023 for ROS users) and electing to backdate the tax relief to 2022.

 

Example:

Johanne is a 35 year old employee who paid Income Tax at the 40% rate in 2022. She makes a pension contribution of €10,000 by 31 October 2023 and informs her local tax office by 31 October 2023 that she wishes to backdate relief on this to 2022.

 

She is entitled to the following refund:

 

Employee Tax Relief Calculation

 

 

 

How do I get started?

1. Complete the below form.

2. A Financial Advisor will help you calculate the contribution amount needed to reduce your tax liability.

3. Advise on a suitable pension option for you.

4. Assist with your Revenue return submission (to be filed on ROS to claim income tax relief on pension contributions).

 

 

Speak with a Financial Advisor:

Fill out your details and inquiry below, and one of our Qualified Financial Advisors will get back to you shortly.

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Early Retirement Options in Ireland

What age can you take early retirement in Ireland?

 

You may be nearing the age where you are deciding what the next step with your pension fund should be regarding early retirement options in Ireland. Each person has different needs leading up to retirement and you may want access to your pension earlier than waiting on the Irish state pension, which the default retirement age is 66 (as at 2023).

 

That being said, if you are looking to retire earlier than this, taking retirement benefits will depend on the type of pension plans you have built up and your retirement options available to you. Your retirement decisions can also have far reaching implications on your financial future, including your pension entitlements, changes to taxation rules, access to state benefits and other schemes so its important to make an informed decision, and plan accordingly.

 

How much you will need to retire at age 50, 55, 60 or 65 really depends on the lifestyle you would like to have in retirement, while ensuring you in fact have sufficient savings available to live out your twilight years. In particular, you will need to consider things like your income, expenses, debt, loans, and future holidays.

 

If you do decide to continue working beyond your normal retirement age its important to note that you need to take or retire your pension benefits before your 75th Birthday (discussed under the “PRSA” below).

 

 

Financial Advisor Consultation Booking | Early Retirement Options in Ireland

 

 

 

 

 

Can I retire at 50 in Ireland?

 

Yes you can. Although the general retirement age (to access the state pension) is 66, there is no specific age at which you must retire in Ireland. However, depending the type of pension arrangement that you have, if you are looking to retire your pension before normal retirement age (NRA), there are age limits to which you can take your pension arrangement. For example, in some cases, you can draw down from your occupational pension as early as age 50.

 

There is certainly a huge incentive to do this given that you can get access to a tax-free lump sum. It is one of the biggest advantages of contributing to a pension arrangement. However, the age at which you can access your lump sum is important.

 

 

Retiring from an Occupational Pension Scheme

 

Occupational Pensions can include Defined Benefit (DB) pension schemes, Defined Contribution (DC) pension schemes, and Executive Pensions Plans.

 

If you are a member of an occupational pension scheme you will usually take your retirement benefits at your normal retirement age (set by the scheme trustees between ages 60 and 70), however, some schemes may have an earlier retirement age or offer early retirement options, and you may be able to access your pension benefits from age 50 with your employer’s and/or trustees consent.

 

The following are some of the circumstances when you can take your benefits before your normal retirement age:

 

1. You are seriously ill and due to your ill health you have to permanently give up work, or,

2. You cease employment, and your employer and the trustees of your pension scheme agree, you may be able to take early retirement from age 50.

 

 

Defined Benefit (DB) pension schemes:

 

A DB scheme is designed to provide you with a pension for life after retirement in which the amount that you will receive is calculated based on your salary and length of service. Alternatively, it may be calculated as 1.5 x your final salary.

 

As mentioned above, as a member in a DB scheme you can potentially access your benefits from age 50. However, it will be dependent upon the specific scheme rules. Each scheme has a different set of rules so its important to review your pension and leaving service options before making any decisions.

 

 

Defined Contribution (DC) pension schemes:

 

Similar to the above DB scheme arrangement, the rules depend on the specific scheme. However, in most cases, once you have left the employment where benefits accrued, you will likely be eligible to access your benefits from age 50 onward (once certain criteria have been met). The amount you receive will depend on your combined level of contributions and the fund performance.

 

 

Additional Voluntary Contributions (AVC’s):

 

Alongside your company pension scheme, you may have also paid additional voluntary contributions (AVC’s). Your company pension scheme and AVC’s will be linked and so the retirement age for both will be the same, hence, these benefits must be taken at the same time.

 

 

Retiring from an Executive Pension Plan

 

Executive Pension Plans are treated similarly to occupational pensions (mentioned above) in that you will be eligible to access your pension from age 50 onward, with trustee permission and where employment has terminated. You will also be able to retire the pension early on the grounds of ill-health. It is, of course, advisable to consult a financial advisor before making this decision to ensure that your pension is taken in a tax-efficient manner.

 

As an Executive Pension is designed for company owners and directors, if its the case that you own or control more than 20% of the shares in the company, you will also have to sell those shares so you can retire early.

 

 

Retiring a Personal Retirement Bond

 

As with Occupation Pension Schemes, if you are deciding on retiring your Personal Retirement Bond (PRB), your benefits can be taken from age 50 provided certain criteria are met. As mentioned above, early retirement would be based on factors such as ill health, or if you have ceased employment.

 

 

 

Can I retire at 60 in Ireland?

 

Yes you can. Again, there is no set age at which you must retire in Ireland. Most people aim to retire at 65 (their ‘normal retirement age’), although if you wish to retire your pension before age 65 you can.  Under personal pension arrangements, retirement benefits can be taken from age 60. If your personal pension is linked to employment, this will be outlined in your contract of employment.

 

 

Retiring from a Personal Retirement Savings Account (PRSA)

 

If you have a PRSA, you can take your retirement benefits at any age between 60 and 75. You do not actually have to retire and stop working. As soon as you reach age 60, you can take your benefits and continue working.

 

There are some circumstances when you can take your benefits before age 60. You may take your benefits if:

 

1. You are seriously ill and due to your ill health have to permanently give up work; or,
2. You work in a specific occupation  where it is normal to retire before 60. These can include specific professional like sportspeople or pilots; or
3. If you are an employee linked to Schedule E employment, you can take your benefits from age 50 if you stop working for that company.

 

Similar to other pension arrangements, the above circumstances will be scheme-specific. If you are unsure of your eligibility, contact your scheme administrators who will explain this to you.

 

If you are a Company Director and you control more than 20% of the shares in the company, you will also have to sell those shares so you can retire early. This option does not apply if you are self-employed, a sole trader or a partner.

 

 

Retiring from a Personal Pension (RAC)

 

The rules for Personal Pension arrangements are similar to PRSA’s when it comes to early retirement. If you have a Personal Pension plan, you can take your retirement benefits at any age between 60 and 75. You do not actually have to retire and stop working. As soon as you reach age 60, you can take your benefits and continue working.

 

There are some circumstances when you can take your benefits before age 60. You can take your benefits if:

 

1. You are seriously ill and due to you ill health you have to permanently give up work; or,
2. You work in a specific occupation where it is normal to retire before 60. These can include specific professional like sportspeople or pilots.

 

 

Financial Advisor Consultation Booking | Early Retirement Options in Ireland

 

 

 

 

What options are available to me when accessing my pension?

 

You will usually have a few options available when you retire, after you have taken your tax-free lump sum. 

 

 

Pension Lump Sum

 

At retirement, everybody has the option of taking a retirement lump sum. The lump sum amount you can take will depend on the type of pension plan you have and your personal circumstances. 

 

Currently, you can take or withdraw a maximum 25% as a tax-free lump sum up to €200,000 from all your pension plans, following your scheme rules. If you take any amount above that, you will have to pay the standard-rate of income tax (currently 20%) between €200,000 and €500,000. For amounts above €500,000 you will be taxed at your marginal rate with the Universal Social Charge (USC), PRSI (if applicable) and any other taxes or government levies that may be due.

 

Approved Retirement Fund

 

After taking your retirement lump sum, the balance of your money can be transferred to an Approved Retirement Fund (ARF). Most people choose this option as it allows to stay invested in the market while allowing you to draw an income, depending on certain restrictions.

Advantages of an ARF

 

What is an ARF?

An ARF is a separate plan that allows you to continue investing after you retire. You can manage the fund and have the option to invest in a wide range of investment funds. You can also make withdrawals as you need them. On all withdrawals you make, you also pay income tax at your highest rate, the USC, PRSI (if applicable).

 

If you have a PRSA, you can continue investing in your PRSA after you take your retirement lump sum. Your PRSA will become a vested PRSA and will be treated the same as an ARF until you reach age 75. When you die, any money left in your ARF or (vested) PRSA will pass to your estate, and your nominated beneficiaries. If passed to your spouse or civil partner, they can have the option of continuing to invest in a separate ARF.

 

Minimum withdrawal amounts

There will be a minimum withdrawal each year from your ARF, that will also be liable to income tax, PRSI, and USC. 

The current minimum withdrawal amount is 4% of the value of your fund from age 61, and 5% of the value of your fund from age 71. Currently if the total value of your ARF and vested PRSA is more than €2,000,000, you must withdraw at least 6% of the total value every year.

 

 

Annuity

 

An Annuity is an alternative to the ARF. This is a pension for life and pays a regular income to you for the rest of your life. Your regular income stops when you die unless you choose an option which continues this payment.

Advantages of an Annuity

 

Annuity Options 

Single-life: This is payable for the rest of your life only.

Joint-life: A percentage of your pension is payable to your spouse after you die.

 

There are also a number of extra options available:

 

Guaranteed Period: If you die during this period, your dependents will continue to be paid the pension.

Level Annuity: The payment remains the same throughout your life.

Escalating Annuity: The payment increases at a fixed rate each year to account for inflation (depending on Revenue limits).

 

 

Take remainder as a taxable cash sum

 

Depending on the type of plan you have, you may be able to take the rest of your fund altogether as taxable cash (after the retirement lump sum). This is known as the Trivial option and it is for individuals with smaller pension funds.

 

 

Maximum Pension Fund (€2,000,000 and over)

 

When you retire, the maximum pension allowed from all sources for tax purposes is €2,000,000. This is called the standard fund threshold (SFT). Any pension fund over €2,000,000 will be taxed at the higher rate (currently 40%). This tax is taken from the pension fund before your retirement benefits are paid.

 

If you have pension funds that are soon to accumulate to €2,000,000 and want to avoid paying excess taxes, Transferring your pension to Malta could be a solution for you…

 

 

 

 

 

 

 

Need help with your Retirement Options?

 

When planning your retirement, your goals and circumstances will be unique compared to other individuals and so there is no one-size-fits-all approach. When accessing your pension early, or assessing your retirement options, we cant stress how important it is to get professional advice before taking any action on your pensions. By not doing so, you could potentially run the risk of paying exorbitant amounts of tax by not taking or retiring your pension entitlements correctly.

 

If you would like guidance and to discuss your retirement options, contact our Financial Advisors by completing the below form.

 

 

FAQ:

The qualifying age for all State pensions in 2023 is 66.

Your income in retirement is treated as regular income. Therefore, it’s subject to the same taxes. This will include withdrawals from ARF's, Annuities, and taxable cash payments. This will be subject to income tax at your marginal rate, PRSI (if applicable), and USC.

 

Once you are age 65 and older, you can earn up to €18,000 tax-free as a single person, or €36,000 as a married couple/civil partnership without being subject to income tax.

 

Once you turn 66, you will stop paying PRSI which is currently at a rate of 4%.

After you access your pension it doesn't mean you can't return to work. You can continue to working if you choose to.

As a rule of thumb, its recommended to have at least 75% of your current income once you retire. However, this will depend on your chosen retirement age, your lifestyle and spending habits in retirement, and your retirement goals. For an accurate calculation, a Financial Advisor can help you project how much you will need saved by retirement, while taking into account your personal situation and pensions.

 

 

Need to speak with a Financial Advisor?

Fill out your details and enquiry below, and one of our Qualified Financial Advisors will get back to you shortly.

Maximize Your Pension Contributions in Ireland

 

To maximize your pension contributions in Ireland, there are several strategies you can consider of which if used holistically can help build effective long term wealth. Increasing your pension contributions is not only an effective way to boost your retirement income but is also very efficient in minimizing your tax obligations by utilizing the tax breaks available through pensions.

 

Here are some steps you can take:

 

Pension Tax Relief

 

One of the main benefits of contributing to a pension in Ireland is the tax relief you can receive. Contributions to a pension scheme are eligible for tax relief at your marginal rate of tax, subject to the annual limits mentioned below. This means that if you are a higher rate taxpayer and are paying 40% in income tax you can claim back the same amount of tax by way of a pension contribution.

 

I.e.,  If you contribute €1,000 to your pension it will only cost you a net amount of €600.

 

The three essential tax incentives that pensions offer are as follows:

 

1. Tax relief on contributions – You can claim tax relief on contributions at your higher rate of income tax, 20% tax relief for lower earners and 40% tax relief for higher earners on all pension contributions.

2. Tax free growth – You do not pay tax on investment growth within your pension fund (No CGT, DIRT, or income tax).

3. Tax free lump sum – At retirement, you can take a tax free lump sum up to 25% of your fund when you reach age 60 (and in certain arrangements, age 50) up to a maximum of €200,000. The balance of your fund would then need to be taken as either an Annuity or Approved Retirement Fund (ARF).

 

 

Financial Advisor Consultation Booking | How to maximize your pension contributions in Ireland

 

 

 

 

 

Pension Contribution Limits

 

There are annual limits on the amount you can contribute to your pension while receiving tax relief. Contributions are limited by your age and income level, and full tax relief within these limits may be obtained. The maximum amount of earnings allowable for calculating tax relief is €115,000 per year.

 

Maximum Allowable Contributions

 

 

Standard example:

Fiona is 45 and earns €60,000 per year. The maximum she can contribute to her pension is 25% of €60,000, which is €15,000.

In this example, Fiona is in the higher tax bracket, and has a marginal rate of tax at 40%.

 

This means she can claim 40% tax relief (€6,000) back from the state on all her contributions, and will only being paying a net amount of €9,000, while realizing the total €15,000 contribution into her pension.

 

Max earnings example:

John is 51 and earns €200,000 per year. The maximum he can contribute is limited to €34,500, that is, 30% of €115,000 (max earnings allowable).

This means she can claim back 40% tax (€13,800) from the state on his total contribution of €34,500.

 

It’s important to keep updated on any changes to these limits, as they may vary over time.

 

 

Employer Pension Schemes

 

Whether you are an employee or an employer (business owner), it is definitely worthwhile considering contributing to an employer pension scheme. Employer contributions are subject to different contribution limits which are usually much higher than individual limits. This can significantly boost your pension savings especially if you are a key or executive employee in the company.

 

 

Employer contributions to occupational pension schemes

 

Employer contributions to an occupation pension are subject to different contribution limits regarding your earnings, years of service, and current or retained benefits. The maximum pension you can receive from an occupation pension is 2/3 of your final salary where the limit may be higher or lower depending on your years of service.

 

An example of the max pension contribution through an employer is illustrated using the ‘Ordinary Annual Contribution calculation’ referred to in the below case study.

 

 

 

Employer pension contributions to a PRSA

 

PRSA’s are becoming a popular option for retirement planning for both employers and employees. As of January 2023, employer contributions to a PRSA do not count as a Benefit in Kind charge. This means that contributions will not attract an income tax charge if your contributions are more than the personal tax relief percentage.

 

Example:

Darragh is 40 and earns €60,000 per year. He contributes 10% of his salary, or €6,000 annually, to his PRSA. His employer contributes 15% of the value of his salary, or €9,000 per year, to his PRSA.

At age 40, Darragh’s tax relief limit is 25%. He can still make an AVC of 15% of his salary to his PRSA.

 

What is now significant is that “the employer” will now be able to make unlimited BIK free contributions to the PRSA if you are a Company Director and want to extract wealth (profits) from the business without being taxed on them. Contributions will, therefore, not be limited by salary and service rules and full tax relief can be taken on the contribution in the year it is paid!

 

Find out more

 

 

 

Personal Pension

 

If your employer does not offer you a pension scheme or if you want to contribute additional funds, you can set up a private pension. There are two main types of personal pension plans available in Ireland, such as Personal Retirement Savings Accounts (PRSA) or Self-Employed Retirement Annuity Contracts (RACs).

 

Technically, employers are required by law to provide staff access to at least one Standard PRSA. It is designed to allow for flexibility when it comes to saving for your retirement and is set up as a contract between you and a pension provider. Tax Relief is available on the contributions you make towards your PRSA or RAC similar to the pension contribution limits mentioned above.

 

Speak with a financial advisor to determine the best option for your circumstances.

 

 

Additional Voluntary Contributions (AVC)

 

Consider additional voluntary contributions (AVCs): If you have a workplace pension scheme, you may have the option to make additional voluntary contributions on top of your regular contributions. AVC’s allow you to make further contributions to your pension, which can further enhance your retirement savings (refer back to the Employer PRSA example above).

 

 

Backdating Pension Contributions

 

Take advantage of backdating contributions. This is particularly relevant if you have unused pension contribution allowances or an income tax bill outstanding for the previous tax year, in which you want to reduce that tax owed to Revenue.

 

Before filing your next income tax return, take advantage of backdating tax relief to the previous year by making a lump sum pension contribution (using the pension tax relief calculation above). The contribution usually needs to be made by 31 October each year.

 

This is available for the self-employed, business owners, and PAYE workers. For PAYE workers or schedule E employees, this can be done by way of an Additional Voluntary Contributions (AVC) or a PRSA. 

 

Pension Review

 

It is important to review your pension regularly to ensure it aligns with your financial goals and retirement plan. This can involve monitoring your contributions, investment structure and performance, fees and charges, and any changes in legislation to ensure that your pension is not negatively impacted.

 

It’s always advisable to consult with a financial advisor who can provide up-to-date and personalized advice based on your specific situation and individual circumstances.

 

 

Financial Advisor Consultation Booking | How to maximize your pension contributions in Ireland

 

 

 

 

 

Where to find us

 

Locally:

If you are looking for a Financial Advisor near you, you can locate us at the famous Walkinstown Roundabout in Dublin 12.

Address: Greenhills Centre, Units 1 & 2, Greenhills Rd, Walkinstown, Dublin 12, D12 YH22.

 

Nationally:

If you are based outside of Dublin, we have Financial Advisors located in Co. Wicklow and Co. Cork (Munster), who would be happy to commute to you.

 

Click on the map below for directions to our offices…

 

Financial Advisor near me | Employer Contributions to a PRSA

 

 

Need to speak with a Financial Advisor?

Fill out your details and enquiry below, and one of our Qualified Financial Advisors will get back to you shortly.

 

Why Transfer my Pension to Malta?

Thinking about transferring your pension overseas? Malta might be the perfect place for you! With its favorable tax laws, Malta is becoming an increasingly popular destination for Irish pension transfers abroad. In this article, we will explore the benefits of transferring your pension to Malta, and whether or not it is a suitable option for you.

IORPs Cross Border Pensions

 

The aim of the IORP II Directive (Institutions for Occupational Retirement Provision Directive) is to ensure the sustainability and security of occupational pension schemes and to promote their development across the EU. The IORPs scheme, therefore, makes it possible for Irish members of Occupational Pension Schemes to benefit from the principles of free movement of capital (abroad) and free provision of services, while ensuring pension scheme members and beneficiaries are better protected through rigorous EU prudential standards.

 

The IORP’s scheme allows for maximum flexibility particularly for many Irish residents who have built up pension benefits working in the UK and who want to transfer or consolidate them abroad (in this case, Malta). This is because the scheme meets HMRC’s QROPS (Qualified Recognized Overseas Pension Scheme) conditions and can accept transfer from any UK regulated pension structure and will follow QROPS rules on drawdown, making it an ideal mechanism for the management of your retirement benefits.

 

 

Who should consider moving their pension to Malta?

 

1. Irish & EU nationals residing / working in Ireland.
2. Irish & EU nationals with existing Irish pensions, particularly occupational pensions.
3. Irish nationals with existing Irish pensions who are highly mobile with their employment.
4. Irish nationals considering retiring to another EU country.
5. British nationals residing / working in UK, with the intention of retiring out of UK.
6. British & EU nationals with existing UK accumulated pensions.
7. Any EU national with an occupational pension.

 

 

Financial Advisor Consultation Booking | Why Transfer my Pension to Malta?

 

 

 

 

Why Transfer my Pension to Malta?

 

Malta is a respected, English speaking financial center with a robust overseas pension scheme legislation. It also brings the security of Malta being a full member of the European Union.

 

Benefits of Malta Pensions

 

1. Tax Efficient:

Malta has over 70 double taxation agreement (DTT), for residents of countries that have a DTT with Malta (avoiding potential double taxation).

Traditionally in Ireland, most people make use of the Approved Retirement Fund (ARF) as a retirement vehicle used to receive pension income (after taking the tax-free lump sum). Here, Irish taxes will be applied on any withdrawals made from the ARF as it is deemed Irish Sourced income. This leads to double taxation as you may also be liable to tax in your country of residence.

 

There is no overseas transfer charge when transferring from UK accumulated Pensions (usually 25%), or for members who do not live in the same country or member state (in the EU). I.e., when transferring to a Maltese Occupational Pension Schemes you are exempt from this charge.

 

With a Malta pension, you can have access to a Lump Sum of up to 30% (uncapped). This is a significant advantage for large pensions. A pension pot of €2 million would receive a tax-free lump sum of €600k in Malta.

In Ireland, the tax-free lump sum that can be taken at retirement is 25% and is capped at €200k. Any amounts over €200k will be taxed as follows:

Between €200k and €500k = taxed at 20%.

The balance exceeding €500k = taxed at 40% (and is also chargeable to USC).

 

Whats also a significant advantage is that there is no Lifetime Allowance Charge once a pension is transferred to a Maltese pension scheme.

In Ireland, there is a €2 million pension fund cap with amounts in excess of this being taxed at 40%. There is no such cap in Malta. (Refer to ‘Case Study 3’ below).

 

2. Flexible options:

You have the option to retire at age 50 and take flexible benefit drawdowns (Refer to ‘Pension Income’ below).

You may combine various smaller pensions into one large pot and so benefit from cheaper fees.

 

3. Investment choice:

You can have access to a wide range of investment opportunities (regulated and unregulated). When the pension is transferred, the proceeds will need to be invested. With some pensions abroad, investment choices can be limited, especially with UK pensions, and they do not have the range of funds that are available in a Malta pension scheme.

 

Please note, you cannot contribute to a Malta Pension.

 

4. Currency flexibility:

Malta allows for currency diversification. This can be beneficial if you want to avoid currency exchange and maintain exposure to multiple currencies and diversify your investments (if you have built up pots in various currencies).

 

5. Maintain residency:

There is no obligation for you to move abroad (leave Ireland) if you are thinking of transferring your benefits to Malta. There are currently many individuals with Malta schemes living in other parts of the world as well as Ireland.

 

6. Estate Planning:

An increasing reason why people are considering moving assets to Malta is due to estate planning opportunities and asset protection, which can be particularly important for those with high net worth or complex financial situations (refer to the below for benefits on death).

 

 

How do I receive my Pension Income?

How do I receive my Pension Income

 

You will need to be at least 50 years of age before you can access an income from the pension. You can also defer the income until age 75.

 

Pension Lump Sum:

The pension lump sum will be paid to you as a percentage that is calculated on the total pension value, of which the maximum is up to 30%. This can be paid as soon as the pension is transferred to the Malta scheme, or at a later stage.

Once the lump sum is paid, you can decide on whether you would like a regular income, or even a one off payment.

 

Regular Benefits:

In Ireland, as per Minimum Distribution, you are required to draw down 4% – 6% of the ARF annually (depending on your age) even if you don’t need the income. This creates unnecessary payments of income tax.

If the pension is transferred to Malta, you can draw down funds as required.

 

If you wish to receive an annuity income, the income paid to you is measured by an actuarial calculation that is based on pension value, years to retirement, and your age.

 

 

Eligible Pensions

 

Occupational Pensions

It is important to note that it only makes sense from a tax perspective to transfer Occupational Pensions to Malta.

 

PRSA’s and ARF’s

It is not recommended to transfer Personal Retirement Savings Accounts (PRSA) or Approved Retirement Fund (ARF) Approved Retirement Funds (ARF) to Malta as you will not be able to reclaim Irish Tax under the Double Tax Treaty (DTA) and you will therefore be taxed twice.

 

 

What happens on Death?

 

The benefits are held in trust and payments can be made directly from the pension scheme to the individuals who want to receive benefits without having to go through an estate.

 

• No need to wait for granted probate.

• Not subject for forced heir-ship rules that apply in many jurisdictions.

 

 

Nominated Beneficiaries

On your death, there are no restrictions on who you can nominate who your benefits can go to. Whether you are going through a divorce or have additional family members you need to take care of, etc, the benefits can be passed on by way of a beneficiary nomination form.

 

If you pass away during the lifetime of the scheme, your nominated beneficiaries will be provided with two options:

 

Lump sum paid out:

This can be done by either encashing the investment, or if the asset structure allows it, it can be transferred in specie in their own name.

Alternatively, they could also use the proceeds from the pension and set up a new pension in their own name.

 

Spousal Benefit:

In Malta, if you pass away, your spouse will received the full value of the pension tax-free.

 

 

Case Studies

 

The following case studies show how each individual can benefit by moving their pension to Malta.

 

Case Study 1: Irish Resident

 

John Irish Resident | Why Transfer my Pension to Malta?

• John has a current pension with Standard Life with a mixture of Standard Life Funds Valued at €500,000.

• John is nearing retirement.

• He has a property in Spain and is looking to permanently move to Spain.

 

Due to Irish tax law, if John had to first retire his pension to an Approved Retirement Fund (ARF) in Ireland and then transfer the ARF over to Malta, he will be taxed twice. He will pay Irish tax at source (PAYE on income coming from his ARF) and then subject to further income tax in Spain. John will not be able to reclaim Irish Tax under the Double Tax Agreement (DTA) as the Irish state has deemed that the ARF is “not a Pension”.

 

Solution: 

Therefore, John should first move his pension to Malta as part of an Occupational Pension Scheme to avoid being taxed twice. He will thereafter benefit from:

 

• Improved flexibility when pension is retired.
• Tax free fund growth.
• Avoid being potentially taxed twice on Income drawdown.

 

NB// There is no obligation for you to move abroad (leave Ireland) if you are thinking of transferring your benefits to Malta. There are currently many individuals with Malta schemes living in other parts of the world as well as Ireland.

 

 

Case Study 2: Non Resident

 

Jennifer Non Irish Resident | Why Transfer my Pension to Malta?

• Jennifer is resident in Northern Ireland (outside the Irish tax jurisdiction) and has a maturing Irish pension benefit worth €300,000.

• She wants to continue living in Northern Ireland in the future.

 

If Jennifer doesn’t put any thought into the retirement process into whether or not it is appropriate, and she retires her pension as an ARF in Ireland she will suffer PAYE at source and will need to file a tax return and pay tax in the UK. As a result, she will not be able to reclaim Irish Tax under DTA as ARF is “not a pension.”

 

Solution: 

Instead, in this case, Jennifer solved the problem by transferring the pension to Malta.

 

• The income will be paid gross in Malta on a regular basis directly to Jennifer’s bank account. No tax will be deducted in Malta.
• Jennifer can then file and pay tax in the UK in respect of that income.

 

 

Case Study 3: €2 million Limit

 

 Richard €2 million Limit

This case refers to individuals who have significant benefits. At a €2 million level, you have a situation where an exposure to excess fund tax applies.

 

Richard is 40, owns his own business in Ireland and has a fund worth €2 million.

Richard wants to retire with €3 million in his pension fund and at that time he decides to accesses his benefit, he will trigger whats known as a ‘Benefit Crystallization Event’ (BCE) and be taxed at 40% on the excess of the fund over €2 million. Therefore, he will be taxed at 40% on €1 million (excess), handing over €400k to the Irish state.

 

If Richard waits to 60 his fund could exceed €5 million making him liable to Excess Fund Tax (EFT) of €1.2 million.

He will need significant planning to avoid that!

 

Solution: 

Richard consults a Financial Advisor and is advised to transfer his pension of €2 million to Malta to avoid paying EFT.

 

• The transfer will trigger a Benefit Crystallization Event (BCE) so the Excess Fund Tax (EFT) is immediately assessed on the value that then exists which is €2 million. As the amount does not exceed €2 million, there is no 40% tax payable.
• The pension is now in Malta and continues to grow to €5 million tax free as there is no tax on income, or tax on capital gains in Malta.

• Richard can now achieve his objective of reaching €5 million at age 60.
• It is also possible for him to receive a lump sum of 30% of the fund when he reaches retirement (up to €1.5 million at age 60).
• He will also have flexibility on his draw downs to suit his lifestyle thereafter.

 

This is therefore a much better outcome for Richard than if he remained in the Irish system.

 

 

Financial Advisor Consultation Booking | Why Transfer my Pension to Malta?

 

 

 

 

Irish Transfer Process

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IORPs Transfer:

There is no need for prior Irish Revenue approval when transferring from an occupational scheme if:

 

• Transferring to an IORPS approved scheme established in a Member State that has implemented the IORPS Directive and with a scheme administrator resident in an EU State.
• The receiving pension arrangement has been approved by an appropriate regulatory authority for the country concerned.
• The arrangement provides relevant retirement benefits.
• Transfer is for Bona Fide reasons (Declaration by Member) provided to Irish Revenue within 7 days of signature/departure to Malta by transferring pension provider.

 

Transferring to a Non IORPs: 

An application must be made to Irish Revenue prior to making the transfer. Once approved, the transfer will then be made over to a personal scheme in Malta.

 

Benefit Crystallization:

If there is a Benefit Crystallization event, a Benefit Noncrystalline Certificate must be completed.

 

 

There are several attractive reasons for transferring pensions to Malta, but it’s important to note that whether or not this is a good idea depends on individual circumstances and should be carefully considered with the help of a financial advisor.

 

 

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Consultation Booking

Use the booking form below to book an appointment with a Qualified Financial Advisor.

 

Address: Greenhills Centre, Units 1 & 2, Greenhills Rd, Walkinstown, Dublin 12, D12 YH22 (Walkinstown Roundabout).

Email: info@smartfinancial.ie

Telephone: +353 1 253 3242

 

To begin, select your preferred meeting ‘location’:

 

 

What you can expect at your consultation:

 

Review your current financial situation.

Discuss your financial goals and objectives.

Identify financial solutions and create a plan to meet your objectives.

Regularly check in with you.