Revenue ties cross-border tax on ARFs up in knots

Q&A: Dominic Coyle

Is it possible to move countries with an ARF/AMRF? I retired four years ago and took out an ARF and an AMRF with my pension fund. The ARF is now my main source of pension.

I am originally from the UK and for family reasons my wife and I are considering moving back to the UK but I cannot find out what that means regarding my ARF. Is it possible to outline my options?

Mr M.C., email

I regularly hail the pragmatism and common sense approach of Revenue in handling people’s tax affairs. It can be intimidating for individuals especially to interact with Revenue and many assume they the tax office is trying to “catch them out”. In general this is far from the truth.


Mostly, Revenue is looking to keep things simple and tends to presume “cock-up” rather than “conspiracy” when things are out of kilter.

Generally. But not in this case. You have found yourself in the perfect storm that is Revenue’s revised rules on the tax treatment of Approved Retirement Funds (ARFs).

ARFs were introduced as an alternative to transferring a pension fund into an annuity on retirement. They provide greater flexibility though also less absolute security than an annuity. Crucially, with the guaranteed annual income offered by annuities being prohibitively expensive in the current global low interest rate environment, they have been widely touted by pensions advisers as a more sensible approach to allocating defined contribution pension funds on retirement – and rightly so.

Critically, from your point of view, if an ARF was seen as delivering pension income, it would qualify in full under our double taxation agreement with the UK so that it would not be taxed both here and in Britain. Instead, you would pay tax only in the jurisdiction where you were tax resident.

The effect of the Revenue “clarification” last December is to create a personal nightmare for individuals trying to honestly manage their tax affairs. It runs directly counter to what PwC pensions partner Munro O’Dwyer calls “people’s reasonable expectations”.

Revenue is saying two things. First, as Revenue does not consider payments from ARFs or AMRFs (Approved Minimum Retirement Funds) as pension payments, it will not sanction PAYE exclusion orders on these payments.

Another jurisdiction

PAYE operates by deducting income tax at source. A PAYE exclusion order absolves the group paying the income of that obligation to deduct tax on the basis that the income is being taxed in another jurisdiction where the payee is now tax resident. In this case, the money is paid gross and taxed (generally under self assessment) in the other jurisdiction.

Refusal to sanction such orders for payments from ARFs means that your money will be taxed at source here before it is paid to you.

However, secondly, from this year, Revenue is requiring you – and all foreign tax resident recipients of ARF/AMRF payments – to calculate each year how much of the money you draw down is income, how much is capital gain on your original investment and how much is part of your original capital.

This is a tortuous prospect for individuals, not least as fund managers are, not unreasonably, not set up to split up how individual payments from your ARF are allocated as between the three elements. To do so would be very costly.

And you might end up being taxed twice on the same money.

Capital drawdowns

While Ireland and Britain do have clauses provided for relief on both income tax and capital gains, only roughly one in 10 of Ireland's double-taxation agreements provide for relief on taxation of capital. And, according to PwC's O'Dwyer, the UK is one of the majority of jurisdictions where capital drawdowns are not relievable.

And, as if things could not get any worse, it remains possible that this income could be viewed abroad as pension income – despite the Revenue’s position. That would mean it’s all being taxed as income abroad and also taxed here where it is not seen as pension income.

Frankly, it is very hard to see how this is remotely workable on a practical level. And it seems totally unfair. Revenue sanctioned the use of ARFs as a vehicle for pension income and now insist the income from them is not pension income. Regardless of the minutiae of tax law.

The best solution, if it is possible with your fund provider, is to transfer your ARF to a new fund in the UK. If that is not feasible, you have a real headache ahead of you. As Munro O’Dwyer puts it: “It’s very difficult to see how we have landed here. People could very easily find themselves in a difficult situation.

“It is a very strange conclusion to say that an ARF is not a pension.”

The only slight reassurance is to be found in the fact that the industry is lobbying Revenue intensely that this new regime is unworkable and that there is need for a more commonsense approach. We can only wait and see. Meantime, unless you can get the fund transferred without triggering a full tax claim, get out your calculator.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email This column is a reader service and is not intended to replace professional advice