There are special tax rules for lump sum payments on retirement or on leaving your job.
There is a minimum tax-free exemption for every complete year of service. This may be increased depending on the number of years you were with the company, your salary and benefits including pension scheme benefits. Where tax is due on a lump sum payment the average rate of tax you paid for the past five years may be substituted for the top rate of tax.
There is also relief available from income tax for lump sum payments made to employees under certain company restructuring schemes involving agreed pay restructuring.
RETIREMENT PLANNING
It is always prudent to plan for the future, especially to provide for income and/or capital on retirement. For employed individuals, many employers provide a company pension scheme which is funded by the individual, or the company or a combination of both. These schemes generally set the level of employer and employee funding annually, however these limits may not be sufficient to produce the income/capital you may require on retirement, especially if you wish to opt for early retirement. For tax purposes an employee can make contributions to their pension scheme of up to 15% of their employment income plus certain benefits and obtain tax relief at their marginal rate on these contributions. Any unused contributions in a tax year can be carried forward to the following years. Employees of companies which do not have occupational pension schemes must provide for themselves.
Finance Act, 1999 introduced new options on retirement for the self employed, individuals in non pensionable employment and proprietary directors. From 6 April 2000 these options are also extended to the AVC (Additional Voluntary Contribution) element of an employee pension fund.
Previously, an individual retiring had the option to take part of their accumulated retirement fund tax free (within limits) and buy an annuity with the balance of the fund which provided an income for life. On death the pension died with the individual unless provision was made for a spouses/ dependents pension. However, ultimately the capital value of the annuity was lost to the estate.
If you require more information please consult your tax advisor or email us at tax@fixmytax.com. |
