Standard Capital Superannuation Benefits (SCSB) explained

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Have you just received a lump sum payment from your employer? Whether it’s for retirement, redundancy, or early termination of a contract, you might be eligible for tax relief. The Standard Capital Superannuation Benefit (SCSB) is a tax relief that can help you keep more of your money. On this page, we’ll explain how the SCSB calculation works and give an example to help you work out the tax relief on your lump sum.

Key takeaways

  • SCSB meaning: The Standard Capital Superannuation Benefit (SCSB) is a way of calculating tax relief on lump sum payments based on your salary and years of service

  • Applying SCSB: If the amount from the SCSB calculation is higher than the basic and increased exemptions, that’s the amount you can claim tax relief on

  • Tax-free limit: The maximum tax relief you can claim on most lump sum payments is €200,000 over your lifetime

What is the SCSB?

The Standard Capital Superannuation Benefit (SCSB) is a type of tax relief that helps reduce the amount of tax due on a lump sum payment from your employer.

In Ireland, when you receive a redundancy or retirement lump sum, one of three different tax exemptions may apply:

  1. Basic exemption
  2. Increased exemption
  3. SCSB

Whichever of the three tax exemptions is highest will apply.

Because the SCSB calculation takes into account the most recent salary and years of service, it’s particularly beneficial for employees who have worked with the same employer for a long time. Plus, the longer you’ve worked, the higher your income is likely to be, and the more tax-free allowance you might receive.

Which types of lump sum payments are taxable in Ireland?

There are a few different situations where you might receive a lump sum payment from your employer, such as:

  • Being made redundant, which often includes a statutory redundancy payment. Your employer may offer an extra payment on top.
  • Retirement.
  • If a fixed-term contract is terminated early, you might receive a lump sum as compensation.

Not all lump sum payments are taxable. For example, you won’t have to pay tax on any statutory redundancy payments, and lump sums received due to death or injury are typically tax-free up to a certain limit. However, lump sums that are part of a contract, like some payments in lieu of salary, are fully taxable at your standard income tax rate.

In addition to any statutory payments due at redundancy or retirement, some employers may choose to pay an employee a lump sum as a goodwill gesture. This is known as an ex-gratia payment or golden handshake, and is subject to tax, but tax relief may be available via one (or sometimes two) of the three exemptions.

What is the basic exemption?

The basic exemption is the standard amount of tax relief available in Ireland when you receive a lump sum payment from your employer.

Under the basic exemption, you can receive up to €10,160 tax-free, plus an additional €765 for each full year you worked with your employer. This means that if your payment is within this amount, it will not be taxed.

What is the increased exemption?

The increased exemption lets you add an extra €10,000 to your tax-free amount on top of the basic exemption.

  1. You haven’t received a tax-free lump sum in the past 10 years.
  2. You’re not part of an occupational pension scheme.

If you do have an occupational pension, any tax-free lump sum you may receive from it is subtracted from the increased exemption. In many such cases, the increased exemption is automatically ruled out, because pension lump sums often amount to more than €10,000.

What is the SCSB calculation in Ireland?

To calculate whether the SCSB applies in your case, follow these four simple steps:

  1. First, find out your average yearly pay from the last three years you worked.
  2. Divide this average salary by 15.
  3. Multiply that amount by the total number of full years you worked for your employer.
  4. Deduct any tax-free lump sums you’ve already received or are set to receive from your work pension scheme. This is sometimes known as the relevant capital sum (RCS).

If the result is higher than the basic or increased exemption, you can claim tax relief on that portion of your lump sum payment.

What counts as yearly pay under the SCSB calculation?

When calculating your yearly pay using the SCSB formula, remember to include all taxable income from your job. This includes:

  • Salary
  • Bonuses
  • Commission
  • Overtime
  • Holiday pay
  • Benefits-in-kind, such as a company car

Taxable income can also include any travel pass benefits, cycle-to-work scheme benefits, and the value of shares from profit-sharing schemes. And if your employer used the Temporary Wage Subsidy Scheme (TWSS) in the last three years, these payments are included in your average pay too.

If you worked for less than three years with your employer, the SCSB calculation is based on your total earnings during that time. Previous job earnings should not be included, unless they were with a company in the same group.

What is the relevant capital sum (RCS) for the SCSB calculation?

When calculating the SCSB and increased exemption, the relevant capital sum includes:

  • Any tax-free lump sum you’ve already received from your occupational pension scheme.
  • The value of any future tax-free lump sums you’re set to receive under the pension scheme, even if they will be paid out after you retire or leave your job.
  • If your pension scheme lets you exchange part of your pension for a tax-free lump sum, include the value of this option, whether or not you use it.

These amounts are subtracted at the end of the SCSB calculation to determine the final tax relief you might be entitled to.

What is an example of the SCSB calculation?

John recently retired from his job. He worked for 30 full years and earned a salary of €85,000 per year during his last three years of employment. He’s receiving a lump sum from his occupational pension, which is 1.5 times his annual salary (€127,500). Additionally, his employer gave him an ex-gratia lump sum of €100,000.

Now, we can work out which tax relief is available on this lump sum:

Basic exemption

  • Standard exemption: €10,160
  • Plus: €765 per year of service × 30 years = €22,950
  • Total basic exemption: €10,160 + €22,950 = €33,110

Increased exemption:

John’s pension lump sum of €127,500 exceeds the increased exemption limit of €10,000. This means that the increased exemption doesn’t apply.

SCSB calculation:

  • Average income over the last three years: €85,000
  • Divide by 15: €85,000 / 15 = €5,666.67
  • Multiply by years of service: €5,666.67 × 30 = €170,000
  • Deduct the pension lump sum: €170,000 - €127,500 = €42,500

Since the SCSB amount (€42,500) is higher than the basic exemption (€33,110), John will use the SCSB for tax relief. He’ll need to pay tax on the remaining portion of his ex-gratia payment: €100,000 - €42,500 = €57,500. This amount will be subject to income tax and possibly Universal Social Charge.

What is the maximum tax-free lump sum payment in Ireland?

In Ireland, you can claim up to €200,000 in tax relief on lump sum payments over your lifetime. This limit covers the basic exemption, increased exemption, and SCSB.

If you’ve already received lump sum payments totalling €200,000 in tax relief, you won’t be able to claim further relief on any additional ex-gratia payments. Even if a single lump sum payment would qualify for more than €200,000 in tax relief, you can only claim up to this cap.

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