Will I face double tax bill for Spanish job?
Your questions answered
Q: I have lived in Spain since January 2017 where I work as a self-employed teacher. However, I worked in Ireland for some weeks during 2017, earning around €2,000 (PAYE income only). The same will happen this year. What are the tax implications of the few weeks' Irish work? I am assuming I don't need to declare either Spanish income in Ireland or Irish income in Spain? I am a little confused and I don't want to be double-taxed. Fergal, Barcelona, Spain
A: In drafting our reply, we assume that you do not have any income other than the Irish and Spanish income set out in your question. Based on the information provided, we are unable to determine your tax residency status.
Your Irish PAYE income is taxable in Ireland as you perform your duties here.
The extent of your liability to Irish income tax on your Spanish income will depend on whether you are tax resident here. You are Irish tax resident for a tax year if you are in Ireland for 183 days or more in any year of assessment, or for 280 days or more in the year of assessment and the preceding year.
If you spend 30 days or less in Ireland for any tax year, you cannot be Irish tax resident for that year. If you are in Ireland at any time during a day, that day is counted in determining your Irish tax residence.
If you are not Irish tax resident in 2017 and 2018, there is no need for you to submit an Irish tax return. But as set out above, you will continue to pay Irish tax at source on your Irish PAYE income. Spanish income tax might also arise on your Irish PAYE income, potentially giving rise to tax liabilities in Ireland and Spain on the same income.
If you are tax resident in Ireland in 2017 and 2018, you will pay Irish taxes on your worldwide income. You will be required to register for income tax with the Revenue Commissioners and file a Form 11 return declaring your Irish and Spanish income. Depending on your tax residency status in Spain, you may also be liable to Spanish tax again - raising the possibility of double taxation.
However, the Double Taxation Agreement between Ireland and Spain should mean that your income is not doubly taxed. This is generally provided for by crediting any foreign tax paid against any liability in your country of tax residence as determined under the treaty, or in certain circumstances exempting that income from tax in either Ireland or Spain.
You should get advice in Spain to ensure that you comply with your Spanish tax obligations.
Q: I have two pensions: one from my previous job as an employee - which has a sum of €454,000 in it; the other a Personal Retirement Savings Account (PRSA) with €300,000 in it as I've been self employed since 2000. If I draw down my pension from my employed work, can I continue to make tax savings by investing in my PRSA as I continue to earn. Michael, Naas, Co Kildare
A: Depending on your age and the employer pension scheme rules, you may be able to draw down your employer pension scheme and continue as self-employed and fund a PRSA.
The maximum lifetime threshold which you can fund through all your pension schemes is €2m over your lifetime. (In other words, the maximum pension fund on which you can get tax relief on over your lifetime is €2m). You may be able to take part of the funds as a tax-free lump sum - up to a maximum tax-free lump sum of €200,000 in your lifetime. The next €300,000 is taxed at 20pc.
Normally an employer pension scheme is available to be drawn down by you between the age of 60 and 70 years. However, you should refer to your own scheme booklet to find out when your pension is available to you.
At retirement, you have three options: take part of the funds as a tax-free lump sum and part of them as taxable; buy an annuity - that is, a guaranteed income stream for life; or transfer the balance of the funds to an approved retirement fund (ARF - a personal retirement fund).
If you have drawn from your former employer scheme, but have a separate self-employed income which meets the requirements for pension purposes, you may continue to fund a PRSA. Benefits normally can be taken between the age of 60 and 75. While you may continue to fund your PRSA, it's important that you review the lifetime limits for pensions and tax-free lump sums as these apply to your total pension pot. PRSA contributions may be made in relation to your current year's earnings and also backdated for 2017 - prior to filing your tax return in October/November 2018.
Topping up State pension
Q: I have a question in relation to the contributory State pension - regarding the change from averaging to the new system based on years of contribution (known as the Total Contribution Approach). Where an individual has low social insurance credits and cannot gain the benefit of the new HomeCarer's credits, why can't they have the ability to make additional contributions to increase their State pension similar to what they can do in Britain? The system at the moment is not flexible enough for people with low credits who wish to make additional contributions - and the qualifying rules to make additional contributions is limited and means it leaves so many people unable to bridge the gap. I have a low number of social insurance credits and therefore it looks like I will only qualify for a fraction of the State pension under the new Total Contribution Approach. What options do I have to make additional voluntary contributions to increase my chances of qualifying for the full non-contributory State pension - and will my only option be to apply for a means-tested State pension? John, Churchtown, Dublin 16
A: Unfortunately, there is no way of making additional contributions to increase your State pension similar to the British position. The only facility currently available in Ireland to ensure your social security record is up-to-date is by making voluntary contributions. In order to make voluntary contributions, you must no longer be in employment or if you are self-employed, be no longer making compulsory PRSI contributions. If you are already getting a social welfare payment or signing on for credits, you may get credited contributions which will also keep your social insurance record up to date.
To be eligible to make voluntary contributions you must meet three conditions. First, you must have at least 520 PRSI contributions paid under compulsory insurance in either employment or self-employment. Second, you must apply to make your voluntary contribution within 60 months (five years) of the end of the last completed tax year (contribution year) during which you last paid compulsory insurance or you were last awarded a credited contribution. Third, you must agree to pay voluntary contributions from the start of the contribution week that follows the week in which you leave compulsory insurance.
If you do not meet the conditions in order to be eligible to make voluntary contributions, then unfortunately the only other option available to you is to apply for the non-contributory State pension, which is means-tested.
John Byrne is tax partner with Crowe Horwath
Sunday Indo Business