Lump sum payments
You may receive a lump sum payment from your employer if you retire or have left work. You will only be liable to pay tax on the amount of your payment that is more than either:
- basic exemption and increased exemption (if due)
- Standard Capital Superannuation Benefit (SCSB).
The basic exemption is €10,160, plus €765 for each complete year that you have worked.
The following items can be counted towards a full year's work:
- time worked before and after a career break
- a period of job-sharing or part-time work
- for group companies, all work carried out in Ireland.
If you have taken a career break the length of the break cannot be counted.
John started work on 1 May 1993. He took a career break from 1 March 2003 to 1 July 2006. He was made redundant on 30 September 2016.
His period of service with the company is calculated as follows:
1 May 1993 - 1 March 2003 = 9 years 10 months
1 March 2003 - 1 July 2006 (Career break)
1 July 2006 - 30 September 2016 = 10 years 3 months
His complete number of years of service is 20 years.
You may claim an increased exemption up to €10,000. To claim this, you must not have received a lump sum payment in the past ten years.
You may be due to receive a lump sum payment from your pension scheme. This lump sum will be deducted from the €10,000.
If this payment is not due yet, then the current value of it is deducted from the €10,000.
You may have agreed with your pension provider that you will never receive a lump sum payment. You must inform your employer of this agreement in order to receive the increased exemption.
Standard Capital Superannuation Benefit (SCSB)
You may benefit from SCSB if you have high earnings and long service.
You calculate SCSB at one fifteenth of the average annual pay for your last 36 months in employment. This is then multiplied by the number of year's service. Any tax free lump sum payments you receive are then taken from this benefit.
Payment in lieu of notice
This payment may be regarded as wages or salary or as payment for loss of a job. If your contract provides for payment in lieu of notice, the payment is treated as pay and exemptions do not apply. If it does not, it will be added to your lump sum payment and qualify for the exemptions and basic exemption.
Lump sum payments paid as compensation for change in working practices
You may be entitled to a lump sum payment as compensation for changing duties. These payments are included as pay and are taxed normally.
There are many reasons why compensation payments are made. Examples of these are:
- where working practices change such as the introduction of new technology
- where there is a move of your workplace from one location to another.
You may claim tax relief on this payment at the end of the year.
Futher examples can be found in Taxation of Retirement Lump Sums.