Changes to Finance Bill 2015
The Finance Bill was published on Thursday 23 October 2014 and as usual it included a few surprises that maybe weren’t considered big enough to be included in the Budget speech.
Foremost among these surprises were the changes to the treatment of ARF’s and AMRF’s.
Back in 2006 the government introduced the concept of imputed distribution to those with ARF’s. This meant you had to take out a fixed % of your ARF each year and pay income tax on it. If you didn’t make the withdrawal, the Revenue took the income tax due directly out of your fund anyway. It was introduced gradually, starting at 1% and going up to 3% and subsequently increased to 5% pa. This meant that many ARF investors had to take increased levels of investment risk in order to preserve the value of their ARF fund.
From January 2015 the changes to the imputed distribution will be as follows:
No minimum withdrawal is required until the year in which the client turns age 61
From the year the client turns age 61 the minimum income withdrawal is 4% (down from 5%)
From the year the client turns age 71 the minimum income withdrawal is 5%
If the total value of ARF is over €2 million, then from the year the client turns age 61 the minimum income withdrawal is 6%. The percentage remains at 6% when the client turns age 71
There is no change to the 5% minimum income withdrawal for the remainder of 2014.
This change is to be welcomed as it will help to reduce the risk of individuals outliving their ARF’s or their funds “bombing out”.
AMRF’s were introduced by Charlie McCreevy along with the ARF. If you were investing in an ARF, if you didn’t have a guaranteed income of €12,700, you had to put €63,500 into an AMRF until you were age 75. You could only access the growth on the fund but under no circumstances could you access the €63,500 until you were age 75. It was supposed to be safe guard for those who did not manage their ARF prudently. From January 2015, you will be allowed to withdraw 4% of the value of your AMRF each year. This will be based on 4% of the value of the fund as of 1st February for that year. You will also be allowed to offset any withdrawals from your AMRF against your imputed distribution for the year. When this change is introduced, they are also getting rid of the ability to withdraw the growth on the fund.
Why not speak to Declan Maher on 087 1444977 or at firstname.lastname@example.org to arrange a review of your overall assets to ensure you are making the most of any changes that may benefit you now and into the future.