If you decide to escape the recession by relocating to booming foreign shores, the timing of your move is among the many factors that could affect your bill to Revenue, writes Brian Keegan
Published 23/03/2010 | 05:00
IF you have decided to relocate abroad or go on an extended holiday this year, it is important that you consider some of the tax consequences of leaving Ireland.
Will you be subject to tax in your new country, and, if so, to what extent?
Also, will you remain within the Irish tax net while abroad?
The starting point in determining your tax exposure is your Irish tax residence.
The timing of your departure will be key in determining your residence position.
You will be resident in Ireland if you spend 183 days in the country or 280 days between the current year and the previous year with at least 30 days in one of those years.
Therefore, if you head to Australia at the end of the Irish summer, it is likely that you will be regarded as Irish tax resident for this year.
A further issue is your domicile status. Generally speaking, people who are born and raised in Ireland will be Irish domiciled.
As an Irish domiciled and resident individual, you will be subject to Irish income tax on your worldwide income.
However, you may be able to claim Split Year Relief, whereby your employment income earned after the date of your departure will not be subject to Irish tax.
On application of this relief, you may be entitled to a refund of Irish tax on the basis that you have unused tax credits and standard rate band for that year.
When you leave your job in Ireland, no matter what the circumstances, your employer must give you a Form P45, which is evidence of your earnings in the year and the tax you paid.
Once four weeks have elapsed after receiving the P45, you can then apply to Revenue using a Form P50 (available on the Revenue website) for any tax refunds which may be due to you.
Homeowners could be faced with a decision between selling your property and renting it while abroad. Either decision will give rise to certain tax consequences.
If you decide to rent your property, the first consideration is your entitlement to mortgage interest relief. Deciding to rent your property will result in a loss of that relief.
This is because in order to claim mortgage interest relief the property must be used as your principle private residence.
Temporary absences from the property (provided the property continues to be available for your own use) are normally disregarded if the property is still regarded as your principle private residence.
However, if you decide to rent your home, it is likely to be no longer considered available for your use.
While abroad, rental income from your property will remain in the Irish tax net. Foreign tax may also be due on the same rental income, depending on the foreign tax rules.
If you suffer Irish tax and foreign tax on the same income, relief may be available under the terms of a double taxation treaty.
Ireland currently has 48 double tax treaties in effect, which include treaties with Australia, the US and the UK. Once you become non-resident, your tenant may be obliged to withhold tax at the standard rate, from gross rents payable to you and pay this amount over to the Irish Revenue.
To avoid this obligation for the tenant, you must appoint an Irish resident to act as landlord on your behalf.
Be careful as well if you had claimed stamp duty relief when you first bought the property -- there may be a clawback of relief when you start renting it.
Any gain you make on the sale of your property will be subject to capital gains tax at 25pc.
Depending on the history of ownership and occupation of the property, you can claim principal private residence relief, which will effectively relieve the gain in full or part from capital gains tax.
Although the tax implications of returning home may not be a priority when leaving Ireland, it may be worthwhile from a tax perspective to give some thought to the timing of your return, as there may be tax advantages in arriving home at a particular point during the year.
Overall, it's well worthwhile getting some professional advice to ensure you keep matters straight with the Revenue and avoid running up an unforeseen tax bill.
- Brian Keegan is director of taxation with Chartered Accountants Ireland