Temporary Residents – Be Aware of Unwelcome Gifts  

The remittance basis of taxation, which we have considered in detail in previous commentary, is a very important planning tool for non-domiciled individuals coming to Ireland. However, the remittance basis relates solely to Irish income tax and capital gains tax and does not apply to gifts/inheritances.

Basic Principles – When Does Irish CAT Apply?

Under Irish taxation legislation generally a gift or an inheritance is within the charge to Irish Capital Acquisitions Tax (CAT – not to be confused with Capital Gains Tax (CGT)) if either:

• The disponer is resident or ordinarily resident in Ireland at the date of the gift/inheritance, or
• The recipient is resident or ordinarily resident in Ireland at the date of the gift/inheritance, or
• The asset is an Irish situs asset (regardless of the residence/ordinary residence position of the disponer/recipient)

Note the above are general rules and advice is always required as there can be subtle nuances.

We refer readers to previous commentary in this series where we discussed in detail the provisions relating to “residence”, “ordinary residence” and “domicile”. These concepts are also very relevant in the context of Irish CAT (taxation of gifts and inheritances).

Temporary Residents in Ireland: The 5-Year Rule for Capital Acquisitions Tax (CAT)

As can be seen from the above, the basic premise is that if an individual is either tax resident or ordinary resident in Ireland at the date of a gift/inheritance, such a gift/inheritance is potentially within the charge to Irish CAT. This can potentially have a significant impact on individuals moving to Ireland for a temporary purpose who may be unaware that they could come within the charge to Irish CAT. Thankfully, Irish tax legislation has specific provisions for individuals regarded as “temporary residents” that can relieve such individuals from the charge to Irish CAT (in respect of non-Irish situs assets). The conditions that are required to be satisfied in order to qualify are set out below:

1. A person that is not domiciled in Ireland is treated as not resident and not ordinary resident (for CAT purposes only) unless
2. the individual has been resident in Ireland for the 5 consecutive years of assessment immediately preceding the year of assessment in which the date of the gift/inheritance falls
3. and the person is either resident or ordinarily resident in Ireland on the date of the gift/inheritance

As can be seen from the above, for non-domiciled individuals there is a requirement for a period of five consecutive years of residence before coming within the Irish CAT provisions. As keen readers will be aware from previous commentary, residence for Irish tax purposes is a “days counting” test, based on the number of days an individual is present in Ireland in a particular tax year or over two consecutive tax years. It is worth recapping here that Ireland has two rules on residence – the 183 day test (current year) and the 280 day test (lookback). The lookback rule, as we have previously mentioned, can sometimes be overlooked but it is possible to be regarded as tax resident in Ireland by spending as little as 30 days in a tax year (if 280 days in aggregate is spent in Ireland between the current year and the preceding year).

It is very important for non-domiciled individuals taking up residence in Ireland to be familiar with these rules as they can provide opportunities for planning in relation to the timing and receipt of gifts. Conversely, overlooking these rules can create significant CAT cost, an unwelcome “gift” that could otherwise have been avoided.

Key Takeaways: Irish CAT on Gifts and Inheritances

• Standard double taxation treaties that Ireland has entered into do not cover gift/inheritance tax.
• Ireland has concluded a small number of double taxation agreements that relate solely to estate tax/inheritance tax, including the USA and the UK.
• In the absence of double taxation agreements, double tax on gifts/inheritances can arise. Irish domestic tax legislation includes provisions for a “unilateral credit” but careful consideration of the provisions and advice is definitely required.
• A gift/inheritance of Irish situs assets is generally always within the charge to Irish CAT regardless of the residence/ordinary residence/domicile status of the disponer/disponee.
• Note the Irish tax charge arises not just where the disponee receives a gift/inheritance. It can also arise by virtue of the disponer being resident in Ireland at the date of the gift/inheritance.
• The remittance basis is not relevant in the context of CAT. If a gift/inheritance is within the charge to Irish CAT it is not necessarily relevant whether the funds are remitted to Ireland or not.
• Be mindful of the rules and the interaction with gifts in particular. The timing of gifts can be controlled.
• In Ireland the taxation of the gift/inheritance depends on the relationship between the disponer and the recipient. Gifts/inheritances taken from a spouse are exempt from CAT. For all other gifts/inheritances, there are three classes set out below with aggregate lifetime exemption thresholds.

Conclusion: Irish CAT Planning for Temporary Residents

For non-domiciled individuals taking up residence in Ireland, the taxation of gifts or inheritances can sometimes be an after-thought. It is important for such individuals to be familiar with the rules and the impact on their personal circumstances. The Irish rules allow a period of “grace” before such non-domiciled individuals come within the charge to Irish CAT in respect of non-Irish situs assets. Therefore, it is advisable that where possible, any planning and structuring of affairs, such as the provision/receipt of gifts, takes place whilst not within the scope of Irish CAT. As always tax advice is strongly recommended.

Appendix – CAT Group Thresholds

*care is required to determine the appropriate threshold that applies

Disclaimer: While every effort has been made to ensure the accuracy of information within this publication is correct at the time of going to print, RBK do not accept any responsibility for any errors, omissions or misinformation whatsoever in this publication and shall have no liability whatsoever. The information contained in this publication is not intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without appropriate professional advice.