With international travel beginning ramp up to pre Covid-19 levels with the lifting of restrictions worldwide, coupled with the increasing trend over the last few years of employees working cross borders, it is useful to consider some of the international tax aspects when it comes to dealing with Irish Capital Acquisitions Tax (CAT). CAT can sometimes be overlooked when individuals relocate to other countries.
General Territoriality Principles
CAT is an Irish tax that arises on the beneficiary where they receive a gift or an inheritance. This can sometimes come as a surprise to non-residents as in Ireland a tax charge can potentially arise on the receipt of gift. Whether a beneficiary of an estate or the recipient of a gift is within the charge to Irish CAT depends on a number of factors. In summary the following rules apply:
- If the beneficiary of the gift/inheritance is tax resident or ordinarily resident in Ireland at the date of the gift/inheritance (normally means date of death) then the receipt of the gift/inheritance by that individual is within the Irish CAT net.
- If the disponer is tax resident or ordinarily in Ireland at the date of the gift or at date of inheritance (normally means date of death) then the receipt is within the Irish CAT net.
- Certain property that physically located in Ireland is within the Irish CAT net (e.g. real estate) regardless of the residence/ordinary residence status of the disponer or beneficiary.
Once the gift / inheritance is within the charge to Irish CAT, it is then necessary to have regard the relationship between the parties and CAT thresholds.
There are specific CAT rules when it comes to non-domiciled individuals who come to live in Ireland for a temporary period. These rules provide that where a person is non Irish domiciled, they will not be considered Irish resident or ordinarily resident for the purposes of CAT, unless they has been tax resident in Ireland for five consecutive years of assessment preceding the year of assessment in which that date of the gift/inheritance falls and are resident or ordinarily resident in Ireland on that particular date. This is a very important exclusion from the standard Irish CAT provisions and it is vital that non-domiciled individuals are aware of these provisions and when they could potentially come within the charge to Irish CAT.
As can be seen from the above, the rules are such that Irish CAT can potentially arise where the disponer / beneficiary or even the property is located in Ireland. Any ultimate tax liability will depend on the relationship which exists between the person who receives the gift/inheritance and the person who provides the gift/inheritance and the aggregate value of prior lifetime taxable gifts/inheritances.
Interaction with Double Taxation Agreements (DTA)
Whilst many people are aware of the concept of DTAs that relieve the burden of double taxation in certain circumstances. It is important to be aware that Ireland’s DTAs do not extend to CAT or inheritance tax. Ireland only has two specific tax agreements that cover inheritance taxes – one with the United Kingdom and the other with United States of America. These agreements are further limited in that they relate solely to inheritances/estates and do not extend to lifetime gifts. So for the majority of countries there is no double taxation agreement in place which can lead to issues.
Fortunately Ireland’s domestic legislation does offer unilateral relief in these circumstances which can provide some relief from double taxation where another country, under its domestic tax legislation, has the right to tax the same gift/inheritance or part thereof. In these cases Revenue may allow a credit against CAT payable in Ireland where tax was already paid in another jurisdiction on the same property. This credit is somewhat limited in that it specifically deals with circumstances whereby Ireland charges CAT on property located outside of Ireland where the jurisdiction in which the property is located, taxes the foreign property regardless of the residence of the owner.
For non-domiciled individuals taking up residence in Ireland, even for a temporary period, it is vital to be aware of the potential charge to CAT. With some planning it should be possible to avoid double taxation on non-Irish situs assets. Specific tax advice should always be obtained.
If you would like to know more about the tax implications of non-domiciled individuals taking up residence in Ireland, contact our Tax Team:
- Richard McAufield, Senior Tax Manager, (01) 6440100
- Ronan McGivern, International Tax Partner, (01) 6440100
Disclaimer: While every effort has been made to ensure the accuracy of information within this update is correct at the time of publication, RBK do not accept any responsibility for any errors, omissions or misinformation whatsoever in this update and shall have no liability whatsoever. The information contained in this update is not intended to be an advice on any particular matter. No reader should act on the basis of any matter contained in this update without appropriate professional advice.