Jack died in 2020 and in his Will left the balance of his ARF to his friend, Lucy, to whom he was not married or related. How was this payment from Jack's ARF taxed, if at all, by the Qualifying Fund Manager (QFM)?

• A. It was subject to capital gains tax at 33%, deducted by the QFM
• B. No tax was deducted. It was paid tax free to Lucy
• C. It was subject to income tax at 30%, deducted by the QFM
• D. The QFM operated PAYE on the payment

Answer: (D)

When an ARF holder dies and leaves the ARF balance to a non-spouse beneficiary, the payout to the beneficiary is treated as pension income. The QFM handling the ARF is responsible for administering that payment and collecting the income tax at source through PAYE. So the payer (the QFM) deducts tax under PAYE and passes the net amount to Lucy, with the tax remitted to Revenue. This isn’t subject to capital gains tax, and it isn’t paid tax-free or at a fixed rate like 30%—the tax is applied through PAYE at the beneficiary’s marginal rate.