What happens to your Approved Retirement Fund (ARF) when you die is one of its most significant benefits, as it allows you to pass on the remaining value to your beneficiaries. The tax treatment, however, depends entirely on who inherits it.
The General Rule
When you die, the remaining value of your ARF is considered part of your estate. The ARF is then distributed according to the instructions in your will. It is highly recommended that you specifically name your ARF and its beneficiaries in your will to ensure the funds are distributed as you intend.
Tax Treatment for Different Beneficiaries (in Ireland)
Here is a breakdown of the tax implications for the most common beneficiaries:
- Surviving Spouse or Civil Partner: This is the most tax-efficient way to pass on an ARF.
- The ARF can be transferred into an ARF in the name of the surviving spouse or civil partner.
- There is no Income Tax or Capital Acquisitions Tax (CAT) (inheritance tax) on this transfer.
- The surviving spouse or civil partner will then pay income tax on any withdrawals they make from the fund in the future, just as you would have.
- Children: The tax treatment for children depends on their age at the time of your death.
- Child under 21 years of age:
- The fund is exempt from Income Tax.
- However, it is subject to Capital Acquisitions Tax (CAT), which applies to the total value of the inheritance (including the ARF) that exceeds their tax-free threshold.
- Child 21 years of age or older:
- The fund is subject to a flat rate of 30% Income Tax.
- It is exempt from Capital Acquisitions Tax (CAT). This can be a very attractive option, as it means the inheritance doesn’t eat into their lifetime tax-free threshold for other assets.
- Child under 21 years of age:
- Other Beneficiaries: If the ARF is inherited by anyone else, such as a sibling, relative, or friend, the tax treatment is generally much less favourable.
- The distribution is subject to Income Tax at the deceased’s marginal rate (up to 40%).
- It is also subject to Capital Acquisitions Tax (CAT), and the beneficiary would only be able to use the much lower tax-free threshold for “strangers.”
Jim Doyle
Owner & Director
ACMA, QFA, CGMA
Jim Doyle brings over 30 years of experience in financial and client advisory services. A qualified Accountant and Financial & Investment Advisor, Jim has built a career grounded in trust, expertise, and a deep commitment to client success.
