So why Ireland?
- Ireland is a gateway to the EU – opportunity to retain EU citizenship if an individual acquires a passport from Ireland
- Holders of an Irish passport would have the freedom to work within the 27 (post Brexit) – member union countries and have the right to “visa- free or visa-on-arrival” travel to 172 countries around the world
- Registering a company in Ireland from the UK will allow the company to continue trading without barriers to the EU market
- Ireland will be the only native English speaking country left in the EU after Brexit
- Ireland is in close proximity to the UK (indeed Dublin is closer to London than Glasgow) and in the same time zone as the UK
- Ireland is a common law jurisdiction that is similar to the UK’s legal system
- Ireland has signed comprehensive double tax treaties with 72 countries, including the US and all EU member states
- Multinationals are drawn to Ireland by the low corporate tax rate of 12.5%
- A number of UK companies may relocate to Ireland therefore favourable work opportunities
- The statutory tax residence test is simple to apply and planning opportunities are available
- And of course the green hills and Ireland’s friendly reputation
How does Ireland levy taxes?
Now let’s focus on the tax implications of an individual moving to Ireland. Similar to the UK the liability to taxation in Ireland is based on residence and domicile. To be regarded as tax resident in Ireland for a particular year one would spend 183 days or more in Ireland in that tax year, or 280 days or more in Ireland taking into account the number of days spent in Ireland during a tax year and the preceding tax year under the look back rule. The look back rule is subject to the proviso that an individual will not be regarded as resident for a tax year in which he does not spend 30 days in Ireland. An individual is regarded as being present for a day if they are present for any part of a day and the Irish tax year runs from 1 January to 31 December. It is as simple as that.
An individual will be regarded as ordinarily resident in Ireland for a tax year if they have been Irish tax resident for each of the three preceding tax years. They will not cease to be ordinarily resident in Ireland for a tax year unless they have not been resident in Ireland for each of the three preceding tax years.
If an individual is resident and domiciled in Ireland they will be liable to tax in Ireland on their worldwide income and gains. The marginal rate of income tax in Ireland is currently 52% for employees and 55% for self-employed individuals and gains are subject to capital gains tax at a rate of 33%.
Structuring of income and capital accounts
For those who are resident or ordinarily resident in Ireland but are domiciled outside of Ireland they can avail of the remittance basis for income and gains. This is where matters start to get interesting. By availing of the remittance basis it should be possible to structure a non-domiciled individual’s tax affairs so that their Irish tax exposure can be managed to acceptable levels. The remittance basis of tax in Ireland is similar to the UK however there is no remittance charge to avail of this treatment and our constructive remittance rules are less onerous. There is also no deemed domicile rules in Ireland unlike the UK, therefore an individual can continue to avail of the remittance basis even if they are resident in Ireland for a number of years (subject to them not acquiring an Irish domicile of choice).
As you may be aware remittances of “capital” funds are exempt from tax, whereas remittances of income are liable to income tax. For this purpose, "capital" comprises any funds (income and gains) available at the date of taking up residence in Ireland.
Where remittances are made from a foreign mixed fund account, containing both “capital” and income, the Irish Revenue Commissioners regard the source of remittances to derive from the following:
- First from the income element, subject to Irish income tax, of the account up to the full amount of that income; then
- from capital gains, subject to Irish capital gains tax, and
- the remainder from capital, exempt.
To ensure that one would be able to demonstrate to the Irish Revenue the source of the funds which may be remitted to Ireland, it is important that they segregate various sources of funds.
The Irish legislation contains anti – avoidance legislation to prevent non domiciliaries from obtaining loans or overdraft to meet current expenditures, while at the same time using unremitted foreign income to repay loans abroad.
Choice of Investment Products-Caveat Emptor
There is a special tax treatment in Irish tax legislation for certain types of investment funds. Irish residents are subject to tax at 41% on any income and gains made from these investments (say a Luxembourg SICAV). Indeed this also applies to non-Irish domiciled but resident individuals, regardless of whether the proceeds are remitted to Ireland. Therefore for non-domiciled individuals planning is required to ensure that they do not inadvertently invest in a product which does not give them the desired tax result i.e. the investment does not qualify for the remittance basis of taxation.
If an individual was to acquire equities or similar investments in the future, there are certain investments that are taxable under this special legislation but there are also other investments and equities which are taxable under standard Irish tax rules and therefore eligible for the remittance basis of taxation.
Furthermore, on the date that a person has held the investment for 8 years, they are liable for tax at 41% on any increase in value of the investment from the time they acquired it. If an individual held any of these investments and they carry a latent gain, they could be sold and repurchased before 31 December of the year prior to becoming Irish resident assuming there are no negative tax consequences of doing so in the UK or another jurisdiction.
In the year of arrival, an individual may be entitled to claim split year relief. An individual who, having not been resident in the preceding year, arrives in Ireland during a tax year with the intention and in such circumstances that he will be resident the following year, may elect to be treated as Irish tax resident from the date of arrival only. Therefore any income earned from a foreign employment up to the date of arrival is not taxable if remitted to Ireland.
Robert is a UK domiciled individual and moves to Ireland on 1 April 2017 and will be tax resident in Ireland for the 2017 tax year therefore he would be liable to Irish income tax on his Irish income and foreign income if remitted to Ireland. John is in receipt of €50,000 foreign employment income. In Ireland John would be liable to tax if he remits this income to Ireland. However if he intends to be resident in Ireland in 2018 he can claim split year relief in respect of his foreign employment income. This allows Robert to remit the foreign employment income without a charge to Irish income tax on the income.
Special Assignee Relief Programme (SARP) is another relief available in Ireland that is aimed at employees who have been assigned by his or her employer to relocate to Ireland to work for that same employer. If the individual earns in excess of €75,000 per year, they may be eligible to claim tax back under SARP provided certain conditions are met. The benefit of SARP is that 30% of the income above €75,000 is subject to relief at the higher rate of tax and this relief can be claimed for five years.
Anti – Avoidance legislation
Now to deal with a number of anti-avoidance provisions that were introduced to counteract the avoidance of income tax by transferring assets abroad and the avoidance of capital gains tax by structuring investments so that gains accrue to non-resident companies.
Ireland has similar anti avoidance legislation to the UK. This piece of anti-avoidance legislation contained in s 806 and s 807A TCA 1997 (similar to the UK’s former ICTA 1988, s 739 and s 740) can result in an Irish income tax charge on a tax resident or ordinarily tax resident person in Ireland in respect of income that accrues to a person who is tax resident or domiciled outside of Ireland. The charge to income tax can arise where the income accrues to a foreign resident because of a transfer abroad and the Irish resident individual and/or his/her spouse have the power to enjoy the income or they receive a benefit out of the asset. If a non domiciliary falls within this anti provision they cannot rely on the remittance basis treatment and will be subject to Irish income tax.
However where income becomes payable to a person resident in an EU member state or in the EEA, and they carry on a genuine economic activity in that State and/or it would not be reasonable to conclude that the main purpose of the structuring was the avoidance of liability to Irish tax then the above anti-avoidance provision may not apply. Also there are ways to take advantage of a non-domiciled status to avoid this anti avoidance legislation if one plans correctly on this.
As discussed above there are similar anti-avoidance provisions in respect of chargeable gains, which have the effect of bringing within the charge to Irish CGT any gain element calculated on the disposal of assets located outside of Ireland. The provision relates to gains accruing to foreign tax resident private companies that can be attributed to Irish tax resident participators in certain circumstances. There is a bona fide test within this section of legislation that provides that the anti-avoidance provision will not apply in cases where the disposal giving rise to a capital gain is made for bone fide commercial reasons and is not part of an arrangement of which one of the main purposes is to avoid a liability to tax in Ireland. This piece of anti-avoidance does not apply to a non domiciliary and therefore creates tax planning opportunities for clients intending to set up or invest in an Irish company.
The above legislation is contained in s 590 TCA 1997 and is similar to the legislation in the UK, TCGA 1992, s 13
It is also important to note that in Ireland gains arising to the trustees of a non-resident settlement may, in certain, circumstances, be attributed to persons who have an interest in the property of the trust or who may benefit from the trust. If you are a non domiciliary you may be excluded from this anti avoidance provision.
The above legislation is contained in s 579 and s 579A on the Taxes Consolidation Act (TCA) 1997 and is similar to the legislation in the UK, TCGA 1992, schedule 11(18) and s 87.
When one moves to Ireland it is also important to consider any capital acquisitions tax (“CAT”) implications. CAT is a tax on gifts and inheritances and the tax is primarily payable by the individual who receives the gift or inheritance. The CAT rate is currently 33% and there are lifetime tax free group thresholds and certain reliefs available. Critically there is no potentially exempt transfers on assets that are gifted similar to that which exists in the UK for IHT purposes.
Historically, CAT was assessed on the basis of the domicile of the disponer or the situs of the assets. The charge to CAT is now based on the residence of the disponer or the beneficiary or the situs of the assets. If the disponer or beneficiary is resident or ordinarily resident or the asset is located in Ireland the gift/inheritance could be chargeable to CAT. This could cause issues for unwary non domicilaries moving to Ireland.
There is a relief from CAT available for individuals who are not domiciled in Ireland. Under this relief, if a non-domiciled individual resident in Ireland receives gifts or inheritances from another foreign domiciled individual (who say has never been Irish tax resident) they would not come within the charge to CAT unless they are tax resident in Ireland for the preceding consecutive 5 years and are tax resident or ordinarily tax resident in the year that they take the gift or the gift comprises Irish land or buildings. In order to avoid exposure to Irish CAT in the future, consideration should be given to avoiding Irish tax residence status for one out of every five consecutive tax years. Given the certainty of Ireland’s tax residence rules this can be achieved by watching one’s days spent in Ireland.
Let us take the example of John who is UK national but has been tax resident in Ireland for 2013 up to and including 2016 i.e. 4 consecutive tax years. John’s mother who is based in the UK wants to give a cash gift of GBP500,000 to John. If John takes this gift in 2017 no CAT should arise as he has not been tax resident for the 5 consecutive tax years up to the year preceding 2017 i.e. 2016 . If however John took the gift in 2018 and he was tax resident in 2017 and 2018 (or ordinarily resident) then he would have an Irish CAT exposure.
It may be possible to structure the acquisition of an Irish property by using a non-Irish entity in such a way as to possibly avoid Irish CAT. Also, gifts between married couples are not generally subject to gift tax, irrespective of their residence and domicile position.
In light of the uncertainty surrounding Brexit if clients are looking to relocate from the UK, Ireland may be one of the jurisdictions that they would consider as they would remain within the European Union, avail of a similar tax regime and would be in close proximity to the UK.
Alan Murray is a Private Client tax partner at Mazars Dublin and has over 20 years’ experience dealing with high level Private Client tax issues. He can be contacted on 00353 1 4496480 or firstname.lastname@example.org
This article first appeared in www.taxation.co.uk in April 2017.