Financial Decisions when moving to and from Ireland

As a non-domiciled individual, there are several factors to consider before moving to or from Ireland. It is crucial to seek financial advice to ensure that your actions align with your personal circumstances.

 

Financial considerations when moving into Ireland

Tax Residency

Ireland uses both day-count tests and your center of vital interests to determine tax residency.

You become a tax resident if you spend 183 days or more in Ireland in a tax year or 280 days over two consecutive years.

This is crucial to know as you can make beneficial adjustments to your finances and assets before you become an Irish Tax Resident.

 

Remittance Basis of Taxation

Non-domiciled individuals in Ireland can indeed opt to use the remittance basis of taxation, allowing them to be taxed differently on their foreign income and gains than Irish-domiciled residents.

Domicile refers to the country that an individual considers their permanent home. This is a legal concept distinct from residence or nationality.

In Ireland, domicile can influence tax obligations on global income and gains.

Under the remittance basis, non-domiciled individuals are taxed only on Irish-source income and gains. Foreign income and gains are only taxed when brought into (remitted to) Ireland.

 

Non-domiciled individuals can save on taxes by keeping their foreign income and gains outside of Ireland, as these will not be subject to Irish tax unless remitted. Individuals can choose the remittance basis annually, allowing them to adjust their tax planning based on their financial circumstances and movements of income.

 

Maintaining Overseas Investments

To benefit from the remittance basis of taxation in Ireland, non-domiciled individuals need to structure their overseas investments carefully to ensure that the income and gains are not unintentionally remitted to Ireland or indirectly fall into the Irish tax system. This is a complex area so due consideration needs to be given to investment structures and the instruments used, with professional advice recommended.

The location and registration of investment funds can subject them to an exit tax in Ireland, currently at 41%, regardless of whether the funds and gains are remitted to Ireland.

For example, we see many clients who maintain their UK ISA investments when they take up residency in Ireland and most are not structured correctly and can often lead to extremely complicated tax returns if the investments are not restructured early on.

 

Re-basing Investments before taking up residency in Ireland

There are strategies to mitigate taxes on gains, applicable only from the date of residency, for example; Rebasing investments can be a strategic move for individuals planning to take up residency in Ireland and who intend to use the remittance basis of taxation. Re-basing involves resetting the acquisition value of your investments to their current market value, which can have significant tax advantages. To do this, you would need to work with tax advisors who understand both your current jurisdiction’s tax laws and Irish tax laws.

 

Overseas pension provisions

A full review of your pensions accrued outside of Ireland is necessary as you will need to see how these will interact with Irish pension and tax legislation. Depending on circumstances and pension rules, there will be arguments for maintaining these pensions outside the state or bringing them into Ireland.

This review becomes particularly important for individuals who may be eligible for claiming both Irish and UK pensions. Understanding how these systems interact can significantly impact your overall retirement income and tax situation. It's crucial to consider the implications of transferring or maintaining separate pension accounts in each country.

You should also ensure that any pension funding accrued in Ireland is held in an appropriate structure depending on future plans.

For example; accessing pensions in Ireland (in an Irish structure) can restrict your future options and might not be suitable if you plan to leave Ireland or have remittance-based tax status. This can also lead to pensions being land-locked in Ireland which can lead to punitive taxation for individuals who do not end up retiring in Ireland.

If an individual holds pensions outside the state, they can remit funds into Ireland where they will be taxed in accordance with Irish rules. For example; The Finance Bill 2022 clarified the taxation of retirement lump sums from foreign pensions, including those transferred under IORPS II. Lump sums taken by an Irish resident from foreign pensions are treated like domestic pensions.

If an individual doesn’t plan on remaining in Ireland, an international pension should be considered.  This should all be discussed with a financial advisor to ensure your financial plan has taken your overall aspirations into consideration to ensure there is flexibility with the structures that have been selected.

 

Capital Acquisitions Tax (CAT) – Irish gift / Inheritance Tax

Capital Acquisitions Tax (CAT) in Ireland applies to gifts and inheritances. CAT is calculated based on thresholds, which vary depending on the relationship between the donor (or deceased) and the recipient.

One very important rule to point out is that a non-domiciled person, who becomes a resident/ordinary resident will not be subject to CAT unless and until the person has been so resident/ ordinarily resident for 5 consecutive tax years.

This can be very important for an individual to consider should there be inheritances expected down the line and they plan on remaining in Ireland for more than five years.

 

 

Financial considerations when you are Moving overseas from Ireland

Moving overseas from Ireland involves several financial aspects that you need to consider to ensure your finances are structured properly.

 

Tax Residency Rules

It is essential you understand the tax residency rules of the new country you move to so that any necessary changes to your structures are made within the correct time frame.

 

Maintaining Irish Investment Accounts

Keeping Irish investments in their current structure will depend on the tye of investments you hold and their treatment in your new jurisdiction.

Irish Investment bonds held through a Life office are very much structured for Irish residents. Exit tax will be deducted automatically even for non-residents so it is unlikely that it would be beneficial to hold these investments as it could become complex from a tax reporting point of view in the new country of residence.

Other share accounts could potentially be marked as non-residents and no taxes will be deducted, however, you would need to seek tax advice as to how these will be treated in the new jurisdiction.

 

Maintaining Irish Pensions Holdings

When leaving Ireland, decisions will need to be made regarding the pensions you have accrued. It is often best to remain in your current scheme until your future becomes clearer. This approach helps avoid decisions that could restrict your pension benefits as some Irish pension products are very restrictive and this could lead to the pension money being landlocked in Ireland. An example of this would be where transferring a Personal Retirement Savings Account (PRSA) overseas currently incurs income tax, PRSI, and USC before the transfer. The pension would also more than likely be taxed in the new country when accessed so this would not be an appropriate action in most cases due to the punitive taxes applicable.

There are other issues such as how Irish pension ‘tax-free lump sums’ will be treated should they be triggered while a resident in another jurisdiction, as in some jurisdictions, these may form part of your taxable income even though tax-free in Ireland.

Another example of an issue facing non-residents concerns the Approved Retirement Fund (ARF) which is a post-retirement pension product.  Currently, there is a rule where taxing rights of these pensions remain in Ireland. This means the ARF provider will deduct Irish taxes even if the client is not living in the country. This can lead to unnecessary taxes being paid and in certain instances, a double taxation can occur. There are other international pension products that could be considered in such situations.

Annuities are also a viable option for non-residents as at the time of writing this, rates are at a recent high, but also because they benefit from PAYE exclusion orders, avoiding double taxation in more favourable jurisdictions. A PAYE exclusion order allows the income to be paid Gross in Ireland and then it is up to the individual to declare this income in their country of residence. Other factors such as health, longevity in family, appetite for risk and estate planning desires would also need to be considered.

Engaging in conversations in advance of leaving the country is extremely important as having incorrect structures in place can be extremely costly. Prevention is the best form of medicine!

 

 

Capital Acquisitions Tax (CAT) – Irish gift / Inheritance Tax

Even if you are no longer an Irish Tax Resident, you may still be subject to Irish Capital Acquisitions Tax as Irish rules are quite comprehensive in that it applies to a wide range of situations involving the transfer of wealth through gifts and inheritances.

• CAT applies to gifts and inheritances of property & assets located in Ireland, regardless of the domicile or residence of the giver (disponer) or the receiver (beneficiary).
• Gifts or inheritances of foreign-located assets are subject to CAT if either the disponer or the beneficiary is resident or ordinarily resident in Ireland during the tax year when the gift or inheritance occurs.

Again, there may be some potential for some planning here if you know that you will no longer be Irish resident.

 

Conclusion

It is vital to obtain impartial financial advice tailored to your specific circumstances, including personal assets, other incomes, and future retirement goals, before making decisions about moving from one product or jurisdiction to another. Seek professional advice to ensure a seamless transition and appropriate tax mitigation.