Employers can now pay unlimited BIK free contributions to a PRSA for an employee or director.

From 1 January 2023 employers will be able to pay unlimited BIK free contributions to a PRSA for an employee or director. The contributions will not be limited by salary/service, existing scheme funding or retained benefits, as scheme funding is. The current BIK charge on employer PRSA contributions will be lifted so that from 1 January 2023 such contributions will not attract a tax charge for an employee.

FINANCE BILL 2022 PENSIONS UPDATE
TONY GILHAWLEY FSAI
TECHNICAL GUIDANCE

The Finance Bill, published on 20th October 2022, contains important proposed
pension taxation changes.

This Update is my analysis of these proposed changes. The provisions will not be
effective until the 2023 tax year. Please note that the relevant provisions could
be amended before the Bill is passed in December. Also, some issues may be subject
to later Revenue practice clarification and interpretation.

IMPORTANT – The views expressed in this Update are my own and this Update is for the
use of Financial Brokers only.

Executive Summary

Finance Bill 2022 makes the following proposed changes in private pensions:
• Employers will from 1st January 2023 be able to pay unlimited BIK
free contributions to a PRSA for an employee or director. The
contributions will not be limited by salary/service, existing scheme
funding or retained benefits, as scheme funding is.

The current BIK charge on employer PRSA contributions will be lifted so that
from 1st January 2023 such contributions will not attract a tax charge for an
employee.

This will give rise to new planning opportunities.
• Lump sums taken by Irish residents from foreign pension
arrangements from 1st January 2023 will be taxed as if taken from
an Irish pension arrangement.

This will reduce the attractiveness of transferring funds to such places as
Malta, as a lump sum taken by an Irish resident from a foreign pension
arrangement will now count against their normal €200,000 tax free and
€300,000 taxed @ 20% pension lump sum limits.

• Tax relief on Pan European Pension Plans (PEPPs) will be
provided as for PRSAs.

EMPLOYERS WILL FROM 1ST JANUARY 2023 BE ABLE TO PAY UNLIMITED
BIK FREE CONTRIBUTIONS TO A PRSA FOR AN EMPLOYEE OR DIRECTOR

What is the change?

Currently an employer contribution paid to an employee’s PRSA is a Benefit in Kind
(BIK) for income tax purposes for that employee, but:
• the BIK is not put through the PAYE system and does not attract a USC or
PRSI charge; while
• the contribution is treated for tax relief purposes, as if it were a personal
contribution and so tax relief is limited by the age related % limits and the
€115,000 earnings limit.

In effect the current regime restricts employer PRSA contributions to a max of the
personal tax relief limits which is usually significantly less than could be contributed
by the employer BIK free to an Executive Pension Plan (EPP) (or its Master Trust
equivalent) for the same employee.

Finance Bill 2022 proposes to change this from 1st January 2023 by removing the BIK
charge related to an employer PRSA contribution, and also no longer treating such a
contribution for tax relief purposes as an employee contribution. For the employee,
the PRSA contribution will be entirely tax free.

Will this change apply to 20% directors as well?

Yes, as long as at the time of payment of the employer PRSA contribution they are (or
were) an ‘employee’ of the employer which means is currently working (or worked in
the past) for the employer under a contract of employment.

The contract of employment means a contract of service (i.e. normal
employer/employee relationship) ‘whether the contract is express or implied or if
express, whether it is oral or in writing’.

Will BIK free employer PRSA contributions be limited in any way?

No, it seems. It will not be determined or restricted by the employee’s salary/service,
retained benefits or existing scheme funding.
Of course, the €2m Standard Fund Threshold (SFT) and affordability will limit
contributions for some.
In addition, the salary sacrifice legislation may limit the scope for employers to make.
large BIK free PRSA contributions, where the PRSA contribution is seen to be funded
The removal of the current BIK charge on employer contributions may unintentionally classify an employer
funded PRSA as an unapproved retirement benefit scheme, with a consequent BIK charge in respect of the employer
contribution under s777(1) TCA 1997. However, as the clear intention of Finance Bill 2022 is to remove a BIK
charge in respect of an employer PRSA contribution, I have assumed in this Update that Revenue will not post
January 2023 consider an employer funded PRSA as an unapproved retirement benefit scheme and hence that no
BIK charge will apply in respect of an employer contribution under s777(1). But Revenue may need to confirm this.

 

https://www.zurich.ie/pensions-retirement/switching-to-zurich/

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