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Q. I am a pensioner aged 68. I retired three years ago at which stage I took my tax free lump sum and placed the balance of my fund into an approved retirement fund. Due to my overall financial circumstances I have not needed to withdraw an income from the ARF. I understand that I will now have to make withdrawals from the fund under some new regulations recently introduced. Can you clarify the position.
A. Yes what you have heard is in fact correct and follows provisions introduced in the Finance Act 2006.
For approved retirement funds created on or after 6 April 2000 and where the ARF holder is 60 years of age or older, an annual imputed distribution will apply to the value of assets held in an Approved Retirement Fund (ARF) at 31 December each year. The new arrangement will be phased in over three years from 2007 and the imputed distribution will be calculated as:
- 1% of the value of assets at 31 December 2007;
- 2% of the value as at 31 December 2008; and
- 3% of the value as at 31 December in each subsequent year.
The features of the provision are as follows:
- Actual distributions made during the year from an ARF may be deducted from the imputed distribution to arrive at the net imputed amount, if any, to be regarded as a distribution
- The net imputed amount, is to be regarded as a distribution in January of the year following the year in respect of which the ARF assets are to be valued.
If the actual distribution during the year exceed the stated percentage of the ARF’s assets at 31 December, no tax charge will arise.
The charge will not apply to Approved Minimum retirement Funds or ARF’s held by individuals under the age of 60.
Q. I understand there has been an increase in the amount of rental income exempt from tax where the farm land is being leased. Could you confirm what the new amounts are?
A. As you are aware an exemption from income tax is available on certain leasing income arising from farm land. Up to 2005 an exemption for the first €7,500 of annual leasing income where the lease is for a period of at least 5 years and €10,000 where the lease is for a term of at least 7 years applied. The lessor must be aged 40 years or over or be permanently incapacitated, because of mental or physical infirmity, from carrying on farming. Leases between close relatives do not qualify.
The Finance Act 2006 increased the annual exemption for income derived from certain leases of farmland from €7,500 to €12,000 for leases of five or six years. Where such leases are for seven or more years, an annual exemption of €15,000 will apply, instead of the previous limit of €10,000.
In addition, in order to provide for situations where land is leased along with the entitlement for EU single farm payments, provision is made to allow rental income attributable to the EU single farm payment to qualify for the relief.
These amendments take effect for leases entered into from 1 January 2006 other than the specific amendment in relation to EU single farm payments which takes effect from 1 January 2005.
If you have any queries on money or taxation matters which you would like answered, please send them to "Your Money", c/o Examiner Publications (Cork) Ltd., P.O. Box No. 21, Academy Street, Cork.
Phil Lynch
City Chambers, 4 Lapps Quay, Cork.
© First published The Cork Examiner
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