Annex 1: Minor changes in the law made by the Act: Change 155: Employment-related annuities: taxable pension income: annuities arising in the Republic of Ireland: paragraph 607 of Schedule 1 (section 613 of ITEPA 2003)
This ensures that 10% can be deducted when calculating the taxable amount of certain annuities arising in the Republic of Ireland.
Section 613(2) of ITEPA applies the rules applicable to income within Schedule D Case V to calculate the amount chargeable as taxable pension income in respect of foreign annuities within Chapter 10 of Part 9 of that Act. Section 613(3) of ITEPA lists relevant rules, and includes both sections 65 and 68 of ICTA.
The 10% deduction for pensions provided by section 65(2) of ICTA was extended by section 613(4) of ITEPA to annuities within Chapter 10 of Part 9 of ITEPA. (The text of the note explaining that change in the law is given below for ease of reference.)
The deduction provided by section 65(2) of ICTA does not extend to pensions arising in the Republic of Ireland. Section 68 of ICTA disapplies section 65 of ICTA for all income arising in the Republic of Ireland which is chargeable under Schedule D Case IV or V. Section 68 of ICTA provides calculation rules for the taxable amount of such income, although the differences from those in section 65 of ICTA are in practice limited to the non-availability of the remittance basis set out in section 65(4) to (9) of ICTA. Section 68(5) of ICTA provides a deduction from pensions which is equivalent to that provided by section 65(2) of ICTA. But this does not extend to annuities, even where they are in the nature of pensions. The need to extend the benefit of section 68(5) of ICTA to annuities arising in the Republic of Ireland was overlooked in drafting section 613(4) of ITEPA.
The amendments of section 613 of ITEPA in paragraph 607 of Schedule 1 to this Act replace the references to Schedule D Case V and to provisions in ICTA, all of which are repealed by Schedule 3 to this Act (for income tax purposes only, where appropriate). In doing so, the amendments extend the benefit of the 10% deduction provided by section 68(5) of ICTA to annuities arising in the Republic of Ireland which are within Chapter 10 of Part 9 of ITEPA.
This change is in principle in taxpayers' favour but is expected to have no practical effect as it is in line with current practice.