Revenue Note for Guidance

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Revenue Note for Guidance

790D Imputed distributions from certain funds

Summary

This section, which applies for the year 2012 onwards, provides for imputed distributions for both Approved Retirement Funds (ARFs) and vested Personal Retirement Savings Accounts (vested PRSAs) on a composite basis. Vested PRSAs comprise PRSAs where benefits have commenced, normally by way of a retirement lump sum being taken by the PRSA contributor and, from 25 December 2016 (the date Finance Act 2016 was passed), PRSAs in respect of which benefits have not commenced by the contributor’s 75th birthday. Under this provision, where the aggregate value of the assets held in an ARF(s) and/or a vested PRSA(s) on 30 November each year is €2 million or less, the rate of the imputed distribution is 4% (where the individual is not aged 70 or over for the whole of the tax year), 5% (where the individual is aged 70 or over for the whole of the tax year) of the value of the assets, and where the aggregate value is in excess of €2 million the rate is 6%, regardless of age, of the entire aggregate value – not just the portion that exceeds €2 million.

The section applies to ARFs created on or after 6 April 2000 – the date that the existing gross roll-up regime for ARFs was introduced – and to PRSAs vested on or after 7 November 2002 – the date that PRSA products were introduced.

It only applies where the ARF or PRSA holder is 60 years of age or over for the whole of a tax year.

Prior to 2012, the imputed distribution regime related only to ARFs and was dealt with under section 784A(1BA). Details of the legislation governing the earlier regime can be found in previous editions of the Notes for Guidance.

Details

Definitions

(1) Subsection (1) sets out the definitions and other assumptions underpinning the section. For the most part, these are self-explanatory but the following points should be noted.

“excluded distributions” – in determining the amount of an imputed distribution i.e. the specified amount, certain actual distributions made from an ARF/AMRF or PRSA can be deducted. These are referred to as “relevant distributions” and defined separately. The definition of “excluded distributions” sets out the type of actual distributions that are not to be treated as relevant distributions and, therefore, that cannot be deducted in determining the specified amount. These are essentially distributions that do not attract a tax liability in their own right – for example, transferring assets from one ARF to another beneficially owned by the same individual or a tax-free lump sum taken from a PRSA on vesting. The definition of “relevant distributions” specifically excludes the value of “excluded distributions”.

“other manager” relates to situations where an individual has more than one ARF and/or PRSA and they are managed by different qualifying fund managers (QFMs) and/or PRSA administrators. Subsection (5) allows the individual in such circumstances to appoint one of the QFMs or PRSA administrators as a “nominee” to undertake the requirements of the section and subsections (7) and (8) require the other manager or the other managers to provide the nominee with certain information to allow the nominee to meet its obligations or failing that, for the other manager/managers to operate in a certain way.

“relevant distributions” means the aggregate value of the actual distributions from an ARF (and AMRF (Approved Minimum Retirement Fund)) and the value of PRSA assets made available to the PRSA owner (less the aggregate value of excluded distributions) which can be deducted in the formula for calculating the specified amount (i.e. the amount of the imputed distribution). In the case of distributions from ARFs/AMRFs, only such distributions made from ARFs/AMRFs set up since 6 April 2000 are relevant. This is the date from which the gross roll-up regime was applied to ARFs and AMRFs.

“specified amount” is the imputed distribution for a tax year and is computed by way of a formula.

Basically where the value of the assets in a relevant fund (i.e. all of the ARFs and vested PRSAs beneficially owned by an individual) on the specified date (30 November of a tax year) is €2m or less, the specified amount is equivalent to 4% where the individual is not aged 70 or over for the whole of the tax year, or 5% where the individual is aged 70 years or over for the whole of the tax year, of that value less any relevant distributions (i.e. actual distributions made in that year) from the relevant fund and where the value of the assets is greater than €2m the specified amount is equivalent to 6%, regardless of age, of the full value, not just on that part of the fund that exceeds €2m, less any relevant distributions.

The reference to “the value of assets retained by the PRSA administrator as would be required to be transferred to an AMRF” in the meaning of “A” in the formula is necessary so as to exclude from the base the assets that a PRSA administrator is obliged to “ring-fence” as if they were AMRF assets where the PRSA owner decides not to opt to transfer the PRSA assets to an ARF but to retain them in the PRSA. As the assets in an AMRF are specifically excluded from the specified amount calculation, this ensures that the “ring-fenced” PRSA assets are also excluded.

“vested PRSA” is

  • a PRSA from which assets of the PRSA have been made available to the PRSA owner or any other person. In general, this will be in the form of benefits taken from age 60 (e.g. a retirement lump sum or taxed distribution) on or after 7 November 2002 (the date of introduction of PRSAs). In certain instances, the making available of PRSA assets will not constitute the vesting of the PRSA, e.g. where an amount is transferred to an ARF/AMRF or from one PRSA to another, or is made available to the personal representative of a deceased PRSA holder who dies before attaining age 75 and before any benefits have become payable),
  • a PRSA which is a PRSA AVC, at the time benefits are taken from the main occupational pension scheme (i.e. at the point of retirement), or
  • a PRSA in respect of which the holder reaches the age of 75 years, where, up to and including the date of his or her 75th birthday, the PRSA assets have not been made available to or paid to the holder or any other person, other than in circumstances where part of the assets were transferred to another PRSA in the holder’s name. The reference to a transfer to another PRSA ensures that individuals cannot avoid the deemed vesting of their PRSA by transferring some of their PRSA assets to another PRSA and claiming that the PRSA assets have been made available to another person, i.e. the administrator of the other PRSA.

(1A) A PRSA held by an individual who was 75 years of age before 25 December 2016 (the date Finance Act 2016 was passed), and from which benefits had not been taken on or before he or she attained that age, is deemed to become a vested PRSA on 25 December 2016.

(2) Any reference in the section to the value of an asset in a relevant fund (other than cash) means the market value of the asset in question within the meaning of section 548.

(3) This section applies to any year of assessment in which the individual with the relevant fund is 60 or over for the whole of that year.

(4) The specified amount is regarded either as a distribution of that amount from an ARF or as the making available of PRSA assets of that amount to a PRSA contributor. This is in order that the appropriate separate taxing provisions applying to ARF distributions (section 784A(3) & (7)(b)) and to the making available of PRSA assets (section 787G(1) & (2)) will apply as appropriate.

Several different scenarios are provided for – i.e. where the relevant fund consists solely of one or more ARFs, where it consists solely of one or more vested PRSAs and where there is a mixture of ARFs and vested PRSAs. In the latter scenario, the particular taxing regime will depend on whether the QFM and the PRSA administrator are the same person, in which case the specified amount is regarded as a distribution from an ARF. Where they are not the same person and the individual appoints a “nominee” under subsection (5), the taxing regime will depend on whether the nominee is a QFM, a PRSA administrator, or both, in which case the specified amount will be considered to be a distribution from an ARF, a PRSA and an ARF respectively.

The specified amount will be regarded as having been distributed or made available not later than the second month of the year of assessment following the year of assessment for which the specified amount is determined. This is to give sufficient time to QFMs and PRSA administrators to administer the regime.

(5) An individual may appoint a “nominee” where his or her relevant fund comprises ARFs and/or PRSAs that are not managed or administered by the same QFM or PRSA administrator. The following scenarios may arise – the relevant fund can comprise of more than one ARF managed by different QFMs, more than one PRSA administered by different PRSA administrators, or one or more ARFs and one or more PRSAs managed and administered by different QFMs and PRSA administrators.

The appointment of a nominee is optional where the relevant fund has a value of €2m or less. If no nominee is appointed, each QFM and PRSA administrator must operate in isolation and apply either the 4% or 5% notional distribution to the relevant ARF(s) or PRSA(s) they manage/administer as provided for in subsection (10).

The appointment of a nominee is compulsory where the relevant fund has a value greater than €2m as in such situations the QFM or PRSA administrator will not have sufficient information to operate in isolation as, unless the ARF/PRSA that they manage is itself greater than €2m they won’t know the appropriate rate to apply (i.e. 4%, 5% or 6%).

(6) Where an individual appoints a nominee, he or she must advise the other QFMs and/or PRSA administrators of that fact and provide the name, address and telephone number of the nominee. Where the appointment of a nominee is compulsory (i.e. where the relevant fund has a value greater than €2m) the individual must advise the other manager/managers that the appointment of the nominee is a compulsory appointment and that the reason for the appointment is that the aggregate value of the assets in the ARFs/PRSAs is greater than €2m and therefore attracts the 6% rate of tax.

(7) The other manager/managers must provide the nominee with a certificate for that year stating the aggregate value of the assets in, and relevant distributions from, the ARFs/PRSAs they manage within 14 days of the specified date (i.e. by 14 December of a tax year). In the case of a PRSA fund, the certificates should exclude any amount retained by the PRSA administrator for AMRF purposes, as these do no form part of the asset base for the specified amount. The nominee must retain the records for 6 years for production to Revenue if required.

(8) Where the nominee receives a certificate or certificates from the other manager/managers, the nominee must determine the specified amount as if the value of the assets and the relevant distributions stated in each certificate so received were the value of assets in, and relevant distributions from, an ARF or a vested PRSA managed or administered by the nominee. This will apply even if the nominee only gets some but not all of the required certificates.

(9) Where the relevant fund value is €2m or less and a nominee is appointed the following applies –

  • Where the nominee receives no certificates at all from the other fund manager or fund managers then the nominee and the other manager (or each of the other managers as the case may be) must determine the specified amount in respect of the ARFs/PRSAs that they manage in isolation, as if the individual’s relevant fund comprised solely of the ARFs/PRSAs that each manages.
  • Where the nominee has received some certificates but not all of them, the managers that failed to provide certificates must determine the specified amount in isolation as above. As the nominee will have received at least one or more certificates from the compliant manager or managers, the nominee must calculate the specified amount in accordance with subsection (8) in respect of the nominee and the other managers that provided certificates.

(10) For situations where the relevant value of the assets in the individual’s relevant fund is greater than €2m, the provisions of subsection (9) apply but any specified amount calculated in isolation is to be based on 6% of the value of the fund (as the relevant fund is greater than €2m).

(11) In situations where the individual’s relevant fund comprises ARFs and/or PRSAs that are not managed or administered by the same QFM and/or PRSA administrator and because the value of the assets in the relevant fund does not exceed €2m, the individual opts not to appoint a nominee, each QFM and/or PRSA administrator must determine the specified amount in respect of the ARFs/PRSAs that they manage in isolation as if the individual’s relevant fund comprised solely of the ARFs/PRSAs that each manage.

Relevant Date: Finance Act 2019