Client and his Malaysian spouse have moved to Ireland from Thailand.. His past residence position was as follows
- UK up to 18 years ago
- Malaysia for 15+ years
- Thailand for past 6 months
- Client was born in the UK.
- He and his wife have now moved to Ireland and have bought a home here.
- Client’s spouse is applying for and Irish visa and residency permit
He intends to bring capital from previous earned income into the country to invest in either property or a business to generate recurring income. This is after tax income held in a UAE bank account. This consists of savings from past employment income and the proceeds of share sales all of which occurred before his move to Ireland.
He has rental income from an investment property in the UK. This is paid into a separate bank account
Client’s particular concern is the tax implications of bringing capital into Ireland and the taxation of U.K rental income when Irish resident.
While client intends to remain in Ireland for some time he has no stated intention to remain here indefinitely.
Residence position
Client will be resident in Ireland for 2016 as he will spend over 183 days in the state. Like Ireland, Thailand operates a calendar based tax year. To be resident in Thailand requires spending over 180 days there in a calendar year. Therefore Client would not be Thai resident in 2016 so issues of dual residence do not arise.
Bringing capital into Ireland
The capital held abroad arises from income earned outside Ireland in previous years. In those years client was not Irish resident or ordinarily resident, so this income had no exposure to Irish tax. The fact that it is held in a separate account helps to distinguish it as capital rather than income when transferring it to Ireland.
The backup to this would consist of
- Details of proceeds of share sales
- Tax returns or employment earnings records
- Bank statements from before the move to Ireland. This would show the balances and prove that the funds pre-dated Irish residence.
Split Year Relief
As client is coming to Ireland with the intention of being resident for 2017 any foreign employment income earned in 2016 will be ignored for Irish tax purposes even if remitted into Ireland.
Remittance basis
When an Irish resident taxpayer is not domiciled the state they are entitled to the remittance basis of taxation on foreign income. This means that the foreign income is only taxed in Ireland when it is remitted into the state.
I have outlined above the advisability of recording the separateness of the sources of capital and income. This can also be relevant where the remittance basis of taxation is being claimed. Funds remitted from an account containing a mixture of
- Capital proceeds
- Taxed Income from previous years and
- Current foreign income would be deemed to come firstly from the foreign income and will therefore be taxed as remitted into Ireland. Keeping foreign income separately to the other two categories will prevent this.
Domicile
To avail of the remittance basis client must be domiciled outside Ireland
Domicile is a complex issue but some basic facts are:
- Domicile is determined by a combination of Residence
- Intention to remain permanently in the state in question
Each person acquires a domicile of origin at birth. This is the domicile of their father, or that of their mother, if the parents are not living together. I understand from your file note that Mr Robert’s domicile of origin was the United Kingdom.
Domicile of choice
A person may acquire a domicile of choice which then replaces their domicile of origin. If a domicile of choice is later relinquished the individual reverts back to their domicile of origin For example if client had acquired a Malaysian he would now have relinquished it. He would revert back to his U.K domicile until such time as he acquired another domicile of choice.
The key question here is whether he could be said to have acquired an Irish domicile of choice. As he has reverted back automatically to his domicile of origin while being resident in Ireland he main emphasis is on avoiding being determined as having decided to permanently remain here. Traditionally factors used strengthen this contention would include such matters as
- Maintaining U.K. citizenship
- Maintaining a home in the U.K.
- Making a will under U.K. law
- Keeping a grave plot in the U.K.
- Maintaining links with U.K clubs and associations
The effect of these was weakened in the U.K by the case of Perdoni v Curati when an Italian who had been U.K resident since 1955 was deemed U.K domiciled despite using the above stratagems. The deciding factor was that there was no intention to return to Italy “upon a clearly foreseen and reasonably anticipated contingency” In assessing whether an English domiciled person had acquired a foreign domicile my understanding is that UK law would apply.. Therefore it would be advisable to state such an intention e.g. on health requirements necessitating moving to the U.K.
Setting up a business would strengthen a contention that the client intended to stay for a longer period. It would not of itself amount to an intention to stay indefinitely.. In the clients case also he would not have built up the length of stay referred to in the Curati case
U.K. Rental Income
If the remittance basis applies U.K rental income will be taxable in the United Kingdom as per the Ireland/U.K DTA. While advice should be sought on U.K. tax I understand that U.K personal allowances are available to all citizens of EEA countries including British passport holders. The current U.K personal allowance is £11,000 which will mean no U.K liability.
Any rental taxed in Ireland will be at the client’s marginal rate which will depend on his other income. Not remitting the income would therefore eliminate any tax liability on it.
Income generated from savings
If income is generated from savings while the remittance basis applied the income would only be taxed in Ireland when received in the state.
Inheritance and Gift Taxes
Ireland has inheritance and gift taxes which are affected by the residence of either the disponer or the beneficiary. However, if an individual is not Irish domiciled they will only be caught by these provisions if they have been continuously resident in Ireland for the previous five years.
Depending on other personal circumstances this factor may have relevance in the future.
Irish domicile
If the client were Irish domiciled he would be taxed on worldwide income and gains while resident here. The fact that income was kept abroad would have no effect. He would also be within the ambit of Irish Gift and Inheritance Taxes.