The taxation of funds following the death of an ARF or Vested PRSA holder depends on the beneficiary and their relationship to the deceased. The following provides a breakdown of the potential scenarios and their tax treatments.
Recipient: Spouse/Registered Civil Partner
When an ARF or Vested PRSA passes to a surviving spouse or civil partner, they may choose to either withdraw the full value or have the policy transferred into their own name. The tax consequences vary depending on the option selected.
- Option 1 – Withdraw the full value
Such a payment is treated as a taxable withdrawal from the ARF and is assessed for Income Tax, PRSI, and USC based on the marginal rate applicable to the deceased. However, once the net proceeds are received by the surviving spouse or civil partner, they are exempt from Capital Acquisitions Tax due to the spousal exemption. - Option 2 – Have the policy transferred into their own name
As the spousal exemption from Capital Acquisitions Tax applies, no CAT liability arises. In the case of an existing ARF, the spouse or civil partner can assume ownership without the need for a new application form. However, if the asset is a Vested PRSA, a new proposal form must be completed. Any future withdrawals made by the spouse or civil partner will be treated as income and taxed accordingly under Income Tax, PRSI, and USC.
Recipient: Child UNDER 21 inheriting the proceeds of an ARF*
Any amount exceeding the Group A threshold of €400,000 may be liable to Capital Acquisitions Tax at a rate of 33%.
Recipient: Child OVER 21 inheriting the proceeds of an ARF*
While Capital Acquisitions Tax does not apply—due to a Revenue exemption for children over the age of 21—such payments from an ARF are instead taxed at a fixed rate of 30%
*Children do not inherit an ARF, it is the value/proceeds of the ARF that are received. The ARF must be encashed prior to value passing to the children.
Recipient: Funds passing to others not a Spouse/Registered Civil Partner or Children
An ARF or Vested PRSA holder can have their fund pass to their estate through a Will, with the amount reduced by applicable Income Tax, PRSI, and USC.
If the fund is left to someone outside the specified categories, it will first be paid to the estate, after deducting the deceased’s Income Tax, PRSI, and USC at their marginal rate.
The beneficiary of the net amount may then be subject to Capital Acquisitions Tax (CAT), depending on their relationship to the deceased and the Group Threshold available to them, either Group B or C.
- Group B: As of October 2, 2024, the Group B Capital Acquisitions Tax (CAT) threshold in Ireland is €40,000. This means that beneficiaries such as siblings, nieces, nephews, grandparents, grandchildren, and other lineal relatives can inherit up to €40,000 tax-free. Any amount above this threshold is subject to CAT at a rate of 33%.
- Group C: As of October 2, 2024, the Group C Capital Acquisitions Tax (CAT) threshold in Ireland is €20,000. This threshold applies to beneficiaries who are not closely related to the person giving the gift or inheritance—such as cousins, friends, or unrelated individuals. Any amount received above this threshold is subject to CAT at a rate of 33%
Since ARFs and Vested PRSAs are structured as contract-based arrangements, clients cannot submit a nomination form or letter of wishes to the Qualifying Fund Manager (QFM). In the event of death, the QFM is required to follow the instructions of the estate’s executor when distributing the funds. As such, we recommend that clients have a valid Will in place and seek legal advice to ensure their intentions are clearly documented and properly executed.
Consulting with us at Derradda Financial Services will ensure you comprehend your options and make informed decisions.
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