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Tax on Redundancy & Early Retirement Lump Sum Payment

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  • 12-05-2016 3:36pm
    #1
    joe2687
    Registered Users Posts: 94 ✭✭


    Hi,

    Writing this on behalf of a family member who has been made redundant after 38 yrs. He is taking early retirements, and hasn't received any lump sum payments before. Looking to assess tax liabilities on statutory, ex-gratia and early retirement lump sum payment.

    Statutory = €46,248 - TAX FREE

    Ex-Gratia = €30,769 - TAX FREE

    As i understand it, first €10,160 is TAX FREE and €765 x Yrs Service (38) is also TAX FREE

    therefore up to €10,160 + €29,070 = €39,230 is TAX FREE (also, as he's taking a pension lump sum, he's not subject to additional €10,000 relief)

    so no tax to be paid on Ex-Gratia payment...


    So here's where I'm confused.. The lump sum payment from the pension is €91,243..

    In the redundancy/retirement documentation, it says "If your lump sum is less than €200,000, it can be paid tax free. This limit applies to the aggregate of all lump sums received from 7th Dec 2005"

    But from talking to Revenue (who were extremely short and unhelpful by the way) - they are saying that only 25% of lump sum is tax free, the rest is subject to Tax at the rate of last payslip (he was on €64K p.a.)

    It's very confusing to figure this out. Based on the documentation from employer and pension company, he shouldn't pay tax (as under €200k) - but according to revenue he will...

    Any help or advice would be GREATLY appreciated!

    Cheers
    Joe
    Tagged:


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    #2
    Lockedout2
    Registered Users Posts: 402 ✭✭Lockedout2


    Agree statutory redundany is exempt.

    Ex gratia is not subject to tax to the extent of the basic exempt in this case the basic exemption exceeds the ex gratia.

    The tax free element of the pension is based on possibly two formulas depending on the nature.
    25% of the value of the fund or 1.5 times the salary.

    The tax free element is based on the formula, if the result is less than 200k it can be paid tax free.


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