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While we will endeavour to place your questions with the most appropriate expert for your query, this column is not intended to replace professional advice.
Q. I am 66-years-old and have taken up residence in Ireland after working for 40 years overseas. Will I be exempt from Deposit Interest Retention Tax (DIRT) on interest earned on savings if the bank interest earned is coming from savings held in a non-EU country? Also, I have held an Executive Investment Bond (EIB) with a non-EU company for six years prior to returning to Ireland. I intend to use this EIB to fund my retirement. Are there any exemptions from Capital Gains Tax (CGT) if I use the EIB for this purpose? Daniel, Waterford
A. Firstly, it will be crucial to determine your Irish tax status in 2020. You mention you are returning to Ireland and thus I assume you are Irish domiciled - this essentially means you regard Ireland as your permanent home. Accordingly, given you have been out of the country long-term, you will be subject to taxes in Ireland on foreign income and gains this year only if you are tax resident here.
For you, assuming you did not visit Ireland last year, the 2020 residency test is simple - you will be tax resident if you spend 183 days here this year.
If you are not tax resident, the deposit interest should not be subject to any Irish taxes this year.
If you are tax resident, I should firstly note that as a 66-year-old, you are exempt from Irish income tax if your annual income is less than €18,000. You should also be exempt from PRSI on all income.
DIRT is an Irish withholding tax and whilst it will not apply to your foreign interest, income tax can still arise.
For money held in non-EU institutions, the income tax rate will be 33pc (the same as the DIRT rate) or 40pc on deposit interest. The 33pc lower rate applies if you are a standard rate taxpayer. (A single person with annual income of up to €35,300 pays the standard rate of income tax).
In relation to your query on the Executive Investment Bond (EIB), I assume this does not derive any value from Irish assets. The date of realization or disposal of the EIB is key. If you are not tax resident and the bond is realized this year, then no Irish tax will arise. The subsequent remittance of proceeds to Ireland would not trigger any Irish tax in your case.
If you are Irish resident when the bond is realized, the disposal will be subject to Irish tax.
While there is an Irish exemption for certain monies taken from pension funds (subject to various rules), this will not apply as the EIB is not a pension fund.
In relation to the potential tax here, it is useful to give a general overview as foreign products (other than standard quoted shares) can be an Irish tax minefield and a special regime could apply.
This is particularly relevant where the investment is in a country outside the EU or European Economic Area which does not have a tax treaty with Ireland or is not a member of the OECD. You mention that the EIB is "with a non-EU company" - but you would still need to clarify the location of the actual bond as you could be referring to the broker.
Foreign products may appear similar, but their Irish status will depend on their particular composition and matters such as their location and where and how they are regulated.
Depending on their classification, the tax applicable can vary. While the default capital gains rate is 33pc, a special income tax rate can apply.
To give you a flavour of the possible Irish tax in this case, the EIB could be structured as a type of life assurance or alternatively, regarded as an "offshore fund".
For foreign life policies, the Irish tax on exit can be 40pc or 41pc of the gain, depending on the location of the insurer.
Gains under the offshore fund regime can be subject to the 41pc rate or the investor's marginal rate (up to 40pc).
Universal Social Charge at up to 11pc may also apply. Other tax provisions can also come into play such as a restriction on the use of losses to shelter gains. For niche tailored products, an income tax rate of 60pc could apply if the EIB is of a type where the investment choices made by the fund can be influenced by the owner (you). There is even a rate of 80pc on the Irish tax books where such niche gains are not properly included in the investor's tax return.
If the EIB is not subject to a special Irish regime, then the gain will be subject to 33pc Irish Capital Gains Tax in the normal manner.
Q. I am a US citizen living in Ireland for most of my adult life. Ireland is now my permanent home and tax country. My mother is a US citizen who has lived her entire life in USA. She has no ties to Ireland other than the fact that I live here. My mother plans on leaving me approximately €500,000 in her estate when she passes. (My father is deceased).
My question is, what are the tax implications in Ireland? She already gifts me and my wife €3,000 each per year to avail of the small gift tax exemption and she has never given any other gifts to me. She will not be liable for any US taxes because she won't exceed the US lifetime giving limit of US$11.2 million. Will I need to pay Irish Capital Acquisitions Tax (CAT) or does a double taxation agreement with USA apply? As I said, no tax will be owed in the US because of the country's generous limits on tax-free inheritance.
Tom, Co Clare
A. As a long-term Irish resident, you are within the scope of Capital Acquisitions Tax (CAT) on any inheritances you receive. Normally, CAT at a rate of 33pc applies on the value of any inheritances received above your tax-free threshold. This is currently €335,000 on all gifts or inheritances from parents.
Given the circumstances, the Ireland/US Treaty on estate taxes should indeed be relevant and can apply to offer automatic tax exemption here. Under this treaty, an inheritance taken from a US (non-Irish) domiciled person under a US will should be exempt from Irish CAT as long as the benefit consists of a non Irish asset.
The domicile status of your mother will be critical here. Based on your letter, she seems to satisfy the requirements due to her US citizenship, residency and her limited ties to Ireland.
However, the domicile test will be at the date of death and all facts and circumstances will need to be considered at that point. Assuming this is satisfied and the €500,000 value received does not consist of Irish assets, the inheritance will not be subject to Irish CAT.
If the value consists of any Irish property, such as Irish registered shares or an Irish holiday home, that element will be subject to Irish CAT in the normal manner. It is important to note that the treaty only applies to inheritances. If your mother gifts you the assets, the exemption will not apply.