Where a client has funds in an ARF and/or vested PRSA, an imputed distribution applies for income tax purposes in any year in which the client is aged 61 or over.
The current imputed distribution rate is:
- 4% for those under age 71 at any time during the year, and have total ARF/vested PRSA funds (the non-ring fenced AMRF part) of less than €2m.
- 5% for those over age 71 at any time during the year, and have total ARF/vested PRSA funds (the non-ring fenced AMRF part) of less than €2m.
- 6% if the total of the client’s ARF and/or vested PRSAs (the non-ring fenced AMRF part) exceeds €2m.
The imputed distribution is a notional income deemed to be withdrawn, for income tax purposes, from the ARF/vested PRSA equal to:
[Relevant % x value of ARF/vested PRSA at 30th November less total actual gross withdrawals taken from the ARF/vested PRSA during the same year]
- Where the client has an AMRF with the same QFM as their ARF, any gross withdrawal taken from the AMRF during the year is also offset against the imputed distribution amount.
- The amount of vested PRSA subject to the imputed distribution excludes any ring-fenced part, e.g. €63,500.
- Where an ARF or vested PRSA has invested in property, and a valuation of the property is not readily obtainable at 30th November, Revenue has confirmed that it is acceptable to use a valuation of the property carried out at any date within 3 months prior to the 30th November for the purposes of calculating the imputed
- When the value of an individual’s ARFs and vested PRSAs is determined at 30th November each year, the individual then has up to 31st December to take sufficient withdrawals to avoid the imputed distribution applying for that
- Note that as the valuation date for imputed distributions is 30th November each year, a new ARF or vested PRSA established in December of a year is NOT subject to imputed distributions for that year, as it had no value on the 30th November in that year. Therefore, for someone aged 61 or more in a year, December is a good month to establish a new ARF or vested PRSA, as they can avoid the imputed distribution for the first
If an imputed distribution of €1,000, say, applies then the QFM or PRSA provider, as the case may be, must deduct from the ARF or vested PRSA, income tax and USC (and PRSI Class S95) and remit to Revenue.
Of course, this is very tax inefficient as income tax and USC would have to be levied again if the notional net amount were to be withdrawn later as an actual gross withdrawal.
This table shows the taxation difference between applying tax to an imputed distribution of
€1,000 and taking a gross withdrawal of €1,000:
|Imputed distribution||Actual withdrawal|
|Income Tax & USC withdrawn from ARF/vested PRSA||€45096||€450|
|Net amount paid to client||Nil||€550|
Under the above imputed distribution example, if the individual was to withdraw €550 from the ARF or vested PRSA just after the imputed distribution, this withdrawal would be subject to income tax and USC again (ignoring PRSI), so that the net value to the ARF holder of the €550 balance is just €550 x (1-45%) = €302.50, compared to a net €550 if an equivalent actual withdrawal is made to prevent the imputed distribution applying in the first place.
It is therefore normally in the client’s best interests, to take sufficient actual withdrawals from their ARF/vested PRSA during the year to avoid an imputed distribution applying, i.e. this means taking an actual withdrawal, sometime during the year, of at least 4%/5% pa97 of the value of the ARF/vested PRSA at 30th November each year.
Therefore, in practice the client is required to draw down at least 4%/5% pa of the value of their ARF or vested PRSA (the non-ring fenced part) each year, to avoid a penal tax charge.
Bear in mind also that vested PRSAs must be wound up and transferred to an ARF before age 75, as after age 75 the vested PRSA will be subject to tax on annual imputed distributions with no facility to take withdrawals to avoid the imputed distribution.