Jill Kerby

Taxman takes a bite from the bottom of your ARF

 
BE writes from Dublin: In a reply last Sunday (November 10) you stated that one is not liable to PRSI on any income, including pensions, when over age 66. You might clarify whether the PRSI exemption applies also to Approved Retirement Fund (ARF) income.

An ARF is not considered a pension by the authorities – that is why it is not subject to the 0.6% pension levy (0.75% for 2014, and 0.15% in 2015).

However, as a post pension investment fund, the holder is obliged by the government to pay income tax on 5% of the asset value of their ARF every year – the technical term is “imputed distribution”, whether they actually want or need to draw down this income. If the ARF holder is over age 66 they will pay no PRSI on the income that is drawn down (whether 5% or more) but they may pay some universal social charge depending on their age.

This is the Revenue.ie Universal Social Charge link:  http://www.revenue.ie/en/tax/usc/

SO’D writes from Dublin: I need some clarification about the inheritance of a mortgaged investment property from a civil partner. The property and mortgage are in the sole name of the deceased partner and the tracker mortgage balance exceeds the market value of the property. The rental income does not meet the mortgage repayments. Can the tracker mortgage be transferred to the surviving partner and will it be on the same terms? Can the mortgage company call for immediate repayment of the mortgage?

From what you write, it appears that there was no mortgage protection insurance in place to clear the outstanding balance of this investment loan. According to Naas solicitor Susan Webster, of Susan Webster & Co, “unless the will otherwise directs, the surviving civil partner inherits the property with and subject to the mortgage.” Civil partners have the same inheritance rights as married couples, she adds and even if there is no will, and no children, the surviving spouse will inherit the entire estate.

The only way a surviving partner will know if the banks’ intention regarding the repayment in full of the mortgage debt or whether it will allow it to continue to be repaid at the same terms is to ask. “Nobody can be compelled to accept an inheritance, but they need to do this before receiving any benefit from it. A surviving partner may disclaim one or more specific gifts but not part of an inheritance.” In other words, there is no picking and choosing which parts of an inheritance to accept, such as a loss-making property in negative equity.

Good legal advice is essential before a meeting is scheduled with the bank.

ECO and LC both from Dublin write:  In relation to the PRSI charge on un-earned income is it all un-earned income combined? My interest will be approximately €4,000. Will it calculated on the difference between €3,174 and €4,000.00 and a 4% charge on €826.00 or is it 4% on the entire €4,000.

From next January, any PAYE worker who earns over €3,174 from unearned income such as rent, deposit interest, investment returns or dividends, and who is not age 66 and over and therefore exempt, will be liable to pay the 4% PRSi on the entire sum.  Calculated under Class K of PRSI, this 4% PRSI payment does not come with any social insurance benefits. You will be required to declare this extra tax in any annual tax return. This income is already subject to your highest rate of income tax and USC.

JM writes from Dublin: I have 300 Elan Corporation shares purchased at €12.75 per share. The company is about to be acquired by the US pharmaceutical company, Perrigo. I have two questions: If I accept $6.25 (€4.68) per share offer will it be subject to tax and PRSI? Should I cut my losses and sell them before the merger takes place?

Perrigo have offered to pay $8.6 billion (€6.44 billion) for Elan, and both company’s shareholders will have their say later this month. The merger between Elan and Perrigo involves Elan shareholders getting $6.25 (€4.68) in cash plus 0.07636 Perrigo shares for each Elan share they hold.

Perrigo shares are currently worth about $148.50 (€111.19) and that means that the share swap element of the offer is worth $11.36 (€8.51) to Elan shareholders, making the entire offer worth $17.61 (€13.19) a share to you, which exceeds what you paid for them. 

According to tax adviser Sandra Gannon of TAB Taxation Services in Dublin as far as the Revenue is concerned the cash part of the Perrigo offer “does constitute a part disposal of your reader’s Elan 300 ordinary shares for the purpose of Irish capital gains tax. He will have to file a return to the Revenue, but the amount payable can be offset by some costs involved in this payment and his annual CGT exemption of €1,270.”  A good tax adviser can help you work out what you owe.

Meanwhile, you will only pay PRSI on these shares if your dividends (which may also be subject to income tax and USC) and all your other sources of unearned income exceed €3,174 from next January 1 2014 and you are under age 66. 

If you dispose of your new Perrigo shares some day for a profit, the difference between the acquisition and sale price will be subject to CGT only.

ET writes from Dublin: Is there any circumstance in which PRSI is paid by people over 66? I have a state widow’s pension, a very small private pension, a small part time job, and some income from investments.  I am 67 and I think I am paying PRSI.

If you are over age 66 you are no longer liable to PRSi on any income, even your earning from your part-time job or investments.  This is because you are now receiving the benefit of all your years of contributions or your late husbands’ contributions. You are not charged any more PRSi on your part-time earnings because as a pensioner already, you would not benefit from any further contributions paid.

If you bring your pension documents and P60 to either your inspector of taxes, to your local Citizen’s information Bureau office someone will be able to clarify whether or not you are paying any PRSi. You will be able to apply for a refund if you have been making further contributions since you turned 66.