Top-slicing relief on a redundancy lump sum

Usjes

Does anyone know the specifics of TSR on a redundancy lump sum ? I have read the revenue leaflet on the subject, but it is sloppy with the language used being very imprecise:
http://www.revenue.ie/en/tax/it/leaflets/it21.html#section8
specifically I want to know if the relief is calculated on the entire lump sum or on the taxable portion of the lump sum.
So the leaflet states:

Top Slicing Relief ensures that your lump sum is not taxed at a rate higher than your average rate of tax for the three years* prior to redundancy or retirement.

The wording here suggests that it relates to the average tax rate you pay over the whole lump sum eg lump sum = 60k, TFA = 40k, and you pay 41% on the remaining 20k => the average rate for your lump sum is 41%*20/60 = 13.6%

It then presents the formula:
Taxable lump sum X (tax rate applied to lump sum - average tax rate for previous three years)

Note again that inside the brackets it says 'tax rate applied to lump sum', is there an error here ? Should it read 'tax rate applied to taxable portion of lump sum' ?

Because finally in the worked example:
Example

An employee was made redundant on 8 June 2011. The taxable amount of the lump sum is €21,000, which is taxed at the marginal rate of 41%. The average rate of tax for the prior three tax years was 34%.
Top slicing relief is:
€21,000 x (41% - 34%) = €1,470.
The tax payable will be reduced by €1,470.


See how it uses 41% inside the brackets, which it specifies to be the rate on the taxable portion of the lump sum rather than on the whole sum. This seems to contradict the previous text.


So can anyone say for sure ? Is the rate used the rate averaged over the entire lump sum or just the rate applied to the taxable portion of it ?


Thanks,


Usjes.

Alan Shore

It's the taxable lump sum.

TSR was abolished for redundancies after 31.12.13.

Usjes

Alan Shore wrote: »

It's the taxable lump sum.

TSR was abolished for redundancies after 31.12.13.

So let me get this straight, the revenue leaflet is both:
(i) inaccurate
(ii) out of date
Ah, truely a quality revenue service we have.

2ndcoming

It only applied to the taxable portion, how could you get tax relief on something you didn't pay tax on?