Inheritance Tax on Pensions – How to make sure your Spouse gets your Pension Tax-Free if you pass away.
Recent changes in the Finance Act December 2022 now mean a PRSA Pension is the better way to structure your Pension so that your Spouse inherits your Pension Tax Free in the event of your untimely death.
Currently most Company Directors have Executive Pension Schemes. In the event of your untimely death Executive Pension Schemes in most cases pay a lump sum to a spouse of no greater than 4 times your salary from the pension, with the balance assessable to income tax.
- John is a Company Director with a Gross Salary from his Business of €70,000 per annum.
- John has an Executive Pension valued at €500,000
- In the event of Johns untimely death, the Pension pays a lump sum to his spouse, Ann, tax free of 4 x €70,000 = €280,000.
- The balance of the pension fund, €220,000, is converted to an ARF (Approved Retirement Fund) now owned by his spouse Ann. When Ann takes income from the ARF she is liable for income tax on the payment
What has changed ?
PRSA Pension rules however allows the full value of John’s Pension, €500,000, be paid to Ann, tax free, with no residual income or inheritance tax issues.
If you have any questions or would like more information, please get in touch on 01 5267770 or email firstname.lastname@example.org
Dublin: 01 5267770
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COMPLIANCE & FINANCIAL MANAGER
Michael has been providing tax, investment and lifetime financial planning advice to clients since 2005. He has an in-depth understanding of Business Owners and their requirements, which allows him to guide his clients through the complex world of long-term financial planning.