Pensions Incentive Tax Credits (PITCs) Revenue Commissioners Thursday 1 February 2007
Pensions Incentive Tax Credits Scheme.
Guidance Note for Pensions Administrators concerning the withdrawal of tax credits – Finance Bill 2007 Introduction The incentive for a person to invest some or all of his or her SSIA funds into a pension product takes the form of a payment of tax credits by the Exchequer as follows: o for every €3 of SSIA funds invested the Exchequer will contribute €1 (up to a maximum of €2,500); and o the Exchequer will also contribute SSIA tax on maturity in the same proportion as the amount of SSIA funds invested in the pension product bears to the total of the SSIA funds after maturity. Finance Bill provisions to withdraw tax credits On 29 September 2006, the Minister for Finance issued a public statement to the effect that legislation would be introduced to withdraw tax credits from a pension product should the individual concerned withdraw any funds from it within one year of it having received those credits. Section 30 of the Finance Bill 2007, published on 1 February 2007, is the provision which when passed into law, will result in tax credits being withdrawn where a person makes a withdrawal from his or her pension product within 1 year of it having received tax credits from the Exchequer. The main features of the provision are as follows. o the provision applies to all persons whose pension product received tax credits under the PITC scheme on or after 29 September 2006 – the date of the Minister’s statement; o where such a person seeks to withdraw funds from his or her pension product within 1 years of it receiving tax credits, there will be a claw back of credits; o where the withdrawal of funds is made on or after 10 April 2007, it is the responsibility of the pension administrator to give effect to the claw back; o where the withdrawal of funds is made before 10 April 2007, the individual will be assessed to income tax in such an amount as will give effect to the claw back; o the Revenue Commissioners can seek information from pension administrators regarding those who make a withdrawal from their pension product within a year of it having received credits from the Exchequer.
Pensions Incentive Tax Credits (PITCs) Revenue Commissioners Thursday 1 February 2007
Calculation of amount to be clawed back Where a person seeks to withdraw funds from his or her pension product the amount of tax credits that are to be clawed back is determined by the formula― R x where― R is the amount that the person seeks to withdraw from his or her pension product; C is the total amount of tax credits which the pension product received from the Exchequer; and S is the total amount of SSIA funds that the individual invested in the pension product. Thus, where a person , having invested his or her SSIA funds (S) in a pension product and received tax credits (C) from the Exchequer, immediately seeks to withdraw all the funds (R) from the pension product the amount to be clawed back would, according to the formula be― amount to be clawed back = S+C x C _ S+C =C C__ S+C
In other words, in this scenario, R = S+C and the amount to be clawed back is the amount of the tax credits (C).
Example: Ms. A’s SSIA has a balance of €17,200 after €300 (maturity tax) was deducted on maturity of the SSIA. She decides to invest €15,000 in a pension product. Her pension administrator will make a claim to Revenue for the following amount of tax credits: - the €1 for €3 credit up to a maximum of €2,500 - a proportion of the maturity tax being― €300 x €15,000 €17,200 Total tax credits €2,500 € 262 (rounded up)
€2,762
Say that before 1 year has elapsed since Ms. A pension product received the tax credits, Ms A seeks a withdrawal of €10,000 from her pensions administrator. This will give rise to a claw back of tax credits in the following amount: €10,000 x €2,762 €15,000 + €2,762 = €1,555
If Ms. A seeks this withdrawal before 10 April 2007, she will be assessed to income tax in order to collect this amount of claw back. If the withdrawal is on or after that date, the pension administrator is required to deduct €1,555 out of the requested €10,000 and pay it over to the Revenue Commissioners. The balance of €8,445 is paid to Ms. A. If, as a result of a withdrawal or a series of withdrawals from a pension product, the full amount of the tax credits has been clawed back (or are to be clawed back by an the raising of an assessment on the individual concerned), any further withdrawals will not give rise to a claw back. This might happen where, an individual not only invested SSIA funds in a pension product but also other funds.