1. Overview

The current SFT is €2,000,000. This has been reduced from a high of €5,418,085 in 2010. It is an individual lifetime allowance. On each occasion that you take benefits, the value is tested against the SFT. Any amount over the SFT is subject to Chargeable Excess Tax (CET) @ 40%. As the benefits paid is also subject to Income Tax, the effective tax rate on any “excess” is 70%. Up to 25% of the SFT can be taken as a lump sum. The first 200,000 is tax free and the next 300,000 is taxed @ 20%.

2. SFT Example

Doctor has HSE income and also private practice. He is retiring in 2018 and qualifies for full benefits from the HSE. Let’s assume his salary is €140,000 and he has personal pensions valued at 800,000.

Value of benefits for SFT test: A valuation factor is applied to the pension.

Pension accrued to 1/1/2014:                            63,000 x 20  =  1,260,000

Pension accrued post 1/1/2014:                         7,000 x 20  =      182,000

Lump sum:                                                                                              210,000

Total value of HSE benefits:                                                              1,652,000

3. Is there a Tax Problem?

Retire 800,000 personal pension fund first:

Lump sum 25% x 800,000 = 200,000

Balance to A(M)RF                     600,000

The Remaining SFT is 2,000,000 minus 800,000 = 1,200,000.

Yes there is!

Balance of SFT available:  1,200,000

Value of HSE benefits:                       1,652,000

Excess over SFT                                     452,000

CET payable @ 40% = 180,080

Excess lump sum tax payable: 210,000 @ 20% = 42,000.

Net lump sum payable: 210,000 – 42,000 = 168,000.

4. Any Options Available?

Section 787TA: dual private/public sector encashment option.

Credit for excess lump sum tax paid against CET.

Number of different methods of paying CET. Clients should review retirement dates, consider phased retirement and decide the sequence in which different pension arrangements are taken.