Returning to Ireland - tax on foreign home and assets

Crowe tax partner, Lisa Kinsella, answers Sunday Independent readers’ questions on the tax implications of a foreign home and bringing back assets from abroad when returning to work in Ireland.

The following is an extract from the 19 January 2020 edition of the Sunday Independent.

Tax on foreign home
Question: I emigrated to Australia about 10 years ago and have been working there since. I would like to return to Ireland this year. Since my move, I have married an Australian and we have two children. My husband and I own our own property in Australia. If we decide to sell the Australian property before – or shortly after – we move to Ireland, will we be liable to tax on any profit we make on the sale, and do we pay the tax to the Irish authorities or the Australian authorities? Should we decide to rent out the Australian property after we return to Ireland – rather than sell it – must we pay tax on the rental income earned, which authority do we pay the tax to, and are there any ways to reduce any tax due on that rental income? Ciara, Co Donegal

Answer: You are liable to pay Irish capital gains tax (CGT) on your worldwide gains, if you are an Irish resident and Irish domiciled individual. However, if the Australian property has been your main residence for the entire period of ownership, you will not be subject to Irish CGT on any gain made on the disposal of the property, due to principal private residence relief (PPR).

The past 12 months of ownership is deemed to be a period of occupation for PPR relief, whether you lived in the property or not. Any gain made should be exempt once it is sold within 12 months of your return. PPR relief will be restricted where you did not fully occupy the property for the entire period of ownership, prior to the last 12 months.

Where the property is sold prior to your return, when you are not Irish tax resident, it should not fall into the Irish CGT net. As it is an Australian property, Australian tax advice should be sought prior to the sale of your home to establish whether tax applies there.

If you choose to rent out the property in Australia instead, the rental profits (after deducting expenses) may be subject to income tax there.

It would also be subject to income tax in Ireland as you will be Irish resident and domiciled. You may be entitled to claim a credit against your Irish tax liability for any Australian tax paid.

Assuming your partner is not Irish domiciled, it may be possible to avail of the remittance basis of taxation in relation to his portion of Australian rental income that is not remitted to Ireland, and additionally his portion of any consideration from a disposal that is not remitted, if the property were to fall into the Irish tax net on disposal.

Any income or gains attributable to your partner and not remitted would not be taxable in Ireland.

Question: I recently returned to Ireland after working in the US for a number of years. I invested in a number of US investment funds while working over there. What are the Irish tax implications of moving these funds back to Ireland?

Answer: As an Irish tax resident, originally from Ireland, you will be liable to Irish Capital Gains Tax (CGT) on your worldwide gains on disposal. An individual is considered Irish tax resident if they have spent 183 days or more in Ireland in one tax year or 280 days or more in Ireland across the current and the previous tax year, with at least 30 days in each year.  Assuming you remain in Ireland for the duration of 2020 you are likely to become Irish tax resident.  Any disposal of your investments following your return will therefore be subject to Irish CGT. 

Any gain on the disposal of US shares will attract Irish CGT at 33%.   You should be entitled to an annual exemption of €1,270.  Furthermore, you may also have a US tax exposure.  However, on the basis that you have permanently returned to Ireland, the Ireland/US Double Taxation Treaty provides that only Irish CGT should apply. 

As the disposals will be liable to Irish CGT, the transfer of the sale proceeds from the US to Ireland should not attract any further Irish tax.  

Finally, it should be noted that investments have become quite sophisticated in recent years.  Individuals no longer invest solely in Blue Chip companies quoted on Stock Exchanges.  More often than not individuals are invested in offshore funds, subject to a Special Tax regime in Ireland, where gains are taxed at 41% as opposed to CGT at 33%.  The analysis of such a regime goes beyond the scope of this article. It is recommended that tax advice is obtained before making any such disposals. 

Timing of homecoming
Question: I have worked in the UK since the recession. I would like to move back to Ireland this year. When is the best time during the calendar year for me to return to Ireland – from a tax and social welfare perspective? How do I apply for an Irish PPS number and Irish tax credits? Will I be entitled to Irish state benefits? Joe, London

Answer: The time of year you return to Ireland will determine your residency status. Where you spend 183 days in Ireland in a tax year or 280 days here across two consecutive tax years, with at least 30 days in each year, you will be considered Irish tax resident.

As an Irish resident and Irish domiciled individual, you will be liable to Irish tax on your worldwide income and gains. If you have foreign-source income, it may be more beneficial to be non-resident in your year of return to ensure that these sources of income are not taxable in Ireland. Advice will depend on the sources of income you have. It is also worth noting that as an Irish resident, you will be entitled to a full year’s tax credits, even if you are not working in Ireland for the full year.

However, if you are non-resident, you will only be entitled to a portion of tax credits, based on your Irish income as a percentage of your worldwide income.

You may already have a PPS number from prior to your relocation and if so, you do not need to reapply.

However, you will need to register your new employment with the Irish Revenue Commissioners.

In order to obtain a PPS number, you must make an appointment to attend the PPS number allocation centre. Once you have a PPS number, you must register your new employment with Revenue’s online myAccount service in order to obtain a tax credit certificate.

You will be entitled to claim Irish state benefits to the extent that you have previously paid social welfare contributions, either in Ireland or the UK.

If you worked in Ireland prior to your move to the UK, your PRSI contributions from this employment will still be on your social welfare record. You will also have paid UK national insurance since you began working there.

As there is a social security bilateral agreement in place between Ireland and the UK, the Department of Employment Affairs and Social Protection will collate your Irish and British social security records when determining your Irish state benefit entitlements.

For additional information on any personal tax matters, please contact Lisa Kinsella or any member of our tax team.