The Department of Finance has confirmed that changes to a tax measure called ‘top slicing relief’ will have no impact on retirement lump sums paid under Revenue-approved pension arrangements and statutory schemes. The clarification follows some confused media reporting of the budget.

Last year the finance minister abolished top slicing relief on ex-gratia termination lump sum payments of over €200,000 made in respect of retirements or terminations of employment. In this year’s budget he went further and abolished the relief altogether.

Top slicing relief is a mechanism to look back at previous year’s tax rates and average out the tax take when a ‘once off’ lump sum is paid in a particular year. There are no changes to the specific tax exemptions for ex-gratia or discretionary payments.

It should also be noted that statutory redundancy payments are exempt from income tax, while additional tax credits based on the number of years of service are also retained. Any balance of the ex-gratia payment after the calculation of the exemptions and reliefs will now be liable to income tax based on the year of payment.