The Gazette 1994

GAZETTE

Emi gra t i on - A

Taxing Ma t t er

APRIL 1994

by Richard Grogan, Solicitor.*

Residence and domicile are vitally

important concepts in our tax code.

These concepts concern

practitioners more frequently as

clients become more mobile and

leave Ireland either temporarily or

permanently to take up employment

abroad.

Emigration has been an aspect of our

socio-economic national life since the

famine. In the past our emigrants left

and rarely returned. Nowadays, due to

the ease of international travel and the

opportunities of fixed short-term

foreign employment contracts,

emigrants will often return to visit or

to take up Irish residence again on the

termination of a foreign employment.

As practitioners we are called upon to

advise these clients as to their tax

exposure to Income Tax, CAT, CGT,

Residential Property Tax and Probate

Tax.

Their tax treatment falls to be

determined by reference to their

domicile, residence or ordinary

residence. This is the area which

causes the greatest difficulties but

once this matter is clarified their tax

treatment is reasonably

straightforward

Domicile

An individual acquires a domicile of

origin at birth

. Citizenship and

domicile while normally going hand

in hand, may not always be the

position. On reaching 18, an

individual may acquire a domicile of

choice. This is obtained by an

individual going to a country other

than his domicile of origin with the

intention of permanently residing

there. If that individual ceases to

reside there or to intend to

permanently reside there, then the

domicile of origin is re-acquired

unless a different domicile is

acquired

There are three general rules for an

individual's domicile. Firstly, no

individual can be without a domicile,

secondly, an individual may have only

one domicile at a time and, thirdly, a

domicile once acquired is presumed to

continue until a new domicile is

acquired except in the case of a

domicile of origin being acquired.

Deemed Domicile

The concept of "deemed domicile" or

"fiscal domicile" is (unlike "domicile"

which has no statutory basis) solely

the result of legislation and is to an

extent a legal fiction. The double

taxation agreement between Ireland

and the UK is an example of

attempting to deal with the area of

fiscal domicile. The Revenue

authorities in different countries have

different rules for determining fiscal

domicile. In the case of an Irish or UK

citizen, the Revenue authorities will

firstly determine his domicile status

by reference to national law

. If this

results in an individual having a

deemed or fiscal domicile in both

states (for tax purposes), the question

is determined by reference

successively to permanent home,

personal and economic ties, habitual

abode and nationality. In default of

any clear determination, the matter

will be determined by agreement

between the Irish and UK tax

authorities

. For practitioners advising

clients who return to Ireland from the

UK, section 267 UK Inheritance Tax

Act, 1984 introduced "deemed

domicile" which provides an

individual will be treated as domiciled

in the UK for capital transfers (i.e.

lifetime gifts) if:-

a. he was domiciled in the UK within

the last three years

prior to a

capital transfer,

j b. he was resident in the UK in not

less than 17 of the 20 fiscal years

ending in the fiscal year in which a

capital transfer was made.

This deemed domicile is important for

Irish nationals returning to live in

Ireland after a prolonged period in the

UK. UK Capital Taxes differ from our

CAT in that it is the tax status of the

donor and the value of the property

being transferred which determines

the tax liability, irrespective of the

relationship of the donee to the donor,

(unless the donee is the donor's

spouse where special exemptions

apply). Transfers between spouses in

both the UK and Ireland are exempt

from UK Capital Tax and Irish CAT

unless the transferor's spouse is

domiciled in the UK (this includes

deemed domicile) and the transferee

spouse is domiciled elsewhere, in

which case the exemption from UK

tax is only £55,000 stg. There is no

deemed domicile provision for a

transferee spouse in this situation.

Residence

Irish tax law is principally based on

the residence of an individual. There

is no legislation defining what

residence is. An individual will be

deemed to be resident in Ireland for

the purposes of a potential tax liability

if, firstly, he resides in the State for

six months in any year of assessment

This is a period of six calendar

months not 183 days

. A six months

Richard Grogan

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