Q&A: Q A friend is considering taking redundancy from their public service job. However, they were alarmed to hear that they would not be eligible for statutory redundancy because they pay PRSI at the D1 class. Is this true?
I don’t understand how they could be denied statutory redundancy and it seems unfair as it will mean they have to pay more income tax. If they are not, can you confirm that any redundancy money they get will be treated as an ex-gratiapayment.
Mr A.T., Dublin
AThe rules on statutory redundancy state that, for full-time workers, it is available only to those employees in a job which is fully insurable for all benefits under the Social Welfare Acts.
While this does cover most of us – who generally come under class A – it does not apply to certain groups and that includes those public servants paying social insurance/PRSI at class D1.
As a result, any redundancy paid to your friend – apart from any amount paid under the terms of a contract of employment – is considered an ex-gratiapayment. You are correct in understanding that this means they will not be able to benefit from the tax-free status of statutory redundancy payments.
Ex-gratiapayments do qualify for certain relief. Assuming this is the first time they have taken redundancy, a person can avail of a basic exemption of €10,160 plus €765 for each full year of service with the current employer.
An increased exemption of €10,000 is also available but only to people who are either not members of an occupational pension scheme or who give up their right to a lump-sum payment under such a scheme. That would be unlikely to apply for a person in the public service.
Further relief may be available under top-slicing relief which ensures that your lump sum is not taxed at a rate higher than your average rate of tax for the three years prior to redundancy.
Anything above these limits counts as income in the year of receipt and will be taxed at the relevant income tax rate.
Non-resident accounts
Q My son works and lives in Canada. He has a lump sum of money on deposit in his AIB account. He is earning a low interest on it. Does he have to pay the Dirt tax? If not, how does he get it back? He would like to leave this money as one day he hopes to return to Ireland.
Ms H., Dublin
AYour son does not appear to be tax resident in Ireland as he is living and working abroad. Assuming that is the case, he is entitled to hold a non- resident account – a key advantage of which is that he will not be liable for Dirt, which is now levied at 25 per cent.
Banks have tightened their rules in relation to identity checks on accounts and they may seek evidence of his current address and of his identity. However, I get the impression from your letter that this account has been open some time – probably from a time when he was resident here. In that case, he may only need to declare in writing that he is non-resident.
Following the bogus non- resident account scandal, a number of banks no longer provide this facility. If that proves the case at AIB, he should look at moving the funds to a bank that does facilitate such accounts.
In terms of claiming refunds, he will need to fill out form 54D and return it to the Revenue with a certificate of interest paid which can be obtained from the bank.
Capital guarantee?
Q I have some money in a capital guaranteed savings product and, from the literature I got with them, I understand my capital is fully guaranteed on maturity.
I read somewhere that in some terms and conditions, escape clauses are buried allowing the deposit-taker to return less than the full capital in extreme circumstances, such as, some might say, what we now have. Do you know of any such schemes?
Mr D.B., Dublin.
AAs with any investment, the terms and conditions are very important and all to often left unread. I cannot say I have heard of such an approach but that is not to say it doesn't exist.
As you say, these are extreme times and I can certainly see a situation where a bank collapse would see your capital at risk. However, you do have the benefit of the absolute guarantee put in place by the Government.
The current guarantee is in place until September of this year. Thereafter, there is some confusion. However, even if savings are not covered absolutely beyond September, the underlying improved deposit protection scheme will absolutely guarantee the safety of the first €100,000 you have invested in any individual institution.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or e-mail dcoyle@ irishtimes.com. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering questions. All suitable queries will be answered through the column. No personal correspondence will be entered into.
