The Remittance Basis of Taxation in Ireland vs. The U.K.

Changes to the Remittance Basis of Taxation in the U.K.

As a result of the U.K. Finance Act 2008 the U.K. remittance basis of taxation has changed dramatically. An individual who is U.K. tax resident, U.K. ordinarily tax resident and U.K. domiciled normally pays U.K. tax on his worldwide income and gains. However, an individual who is U.K. tax resident but not ordinarily tax resident and / or not domiciled in the U.K. is only liable to tax on income and gains arising in the U.K. and only on foreign income and gains to the extent that they are remitted to the U.K.

Therefore, previously, if a U.K. tax resident but not ordinarily tax resident and / or not domiciled individual earned a significant amount of money every year from investments held outside the U.K. he would not be liable to U.K. income tax on that investment income if he did not remit it to the U.K.

However the changes to the remittance basis of taxation in the U.K. mean that some people who use the remittance basis from 6 April 2008 will lose their entitlement to UK personal tax allowances and may have to pay a remittance basis charge of £30,000 per annum unless their unremitted income and gains amounts to less than £2,000 per annum.

Irish Remittance Basis of Taxation

There are no such punitive restrictions in relation to the Irish remittance basis of taxation.

An individual who is Irish tax resident and is not ordinarily tax resident and / or not domiciled in Ireland is only liable to Irish income tax on Irish source income and only on foreign income to the extent that it is remitted to Ireland. The Irish Finance Act 2008 actually extended the Irish remittance basis of taxation to U.K. source income. It was formerly taxed regardless of whether or not remitted into Ireland for such individuals.

Therefore an Irish tax resident but non Irish domiciled and / or non ordinarily Irish tax resident individual can earn significant income outside Ireland and not pay Irish income tax on it as long as it is not remitted into Ireland.

The only recent curtailment to the remittance basis of taxation is that Section 15 Finance Act 2006 provided for the discontinuance of the remittance basis of taxation in respect of employment income where that income actually relates to the performance of duties in Ireland.

An individual is deemed to be Irish tax resident if:

(a) He / she is present in the State at any one time or several times in the year of assessment for a period in the whole amounting to 183 days or more (“the 183 day rule”); or

(b) He / she is present in the State at any one time or several times in the year of assessment and the preceding year for a period in the whole amounting to 280 days or more (“the 280 day rule”).

In determining days present in Ireland an individual is deemed to be present if he is in the country at the end of the day. Therefore effectively it is nights spent in Ireland that actually count.

Notwithstanding (b) an individual who is present in the State for 30 days or less in an income tax year will not be treated as tax resident for that year.

An individual is deemed Irish ordinarily tax resident in the State from the commencement of the fourth year if he has been Irish tax resident for the previous 3 income tax years.

The principle of domicile is more difficult to define. It broadly refers to the country where an individual considers as his natural home. An individual acquires a domicile of origin at birth (usually his father’s) and the domicile of origin is normally retained unless he takes steps to acquire a domicile of choice. Such steps might include:

• Making a will under the laws of the new country (domicile of choice).

• Choosing to be buried in the new country (domicile of choice).

• Disposing of property ties in the old country (domicile of origin).

An Irish tax resident or ordinarily tax resident individual who is not Irish domiciled can enjoy the remittance basis in relation to non Irish and non U.K. gains.