This country-specific Q&A provides an overview to tax laws and regulations that may occur in Ireland.
This Q&A is part of the global guide to Private Client. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/private-client-2nd-edition/
Which factors bring an individual within the scope of tax on income and capital gains?
An individual’s tax residence, ordinary residence and domicile status need to be considered when determining the extent of an individual’s exposure to Irish tax. However, income on Irish situs assets, and gains on certain specified assets, will always fall within the charge to Irish tax irrespective of these factors.
Irish nationality will not bring an individual within the charge to Irish tax
Domicile is a common law concept. There are three categories of domicile – domicile of origin, domicile of choice, and domicile of dependence.
Every person is born with a domicile of origin, which usually follows the domicile of the persons father until he / she acquires 18 years of age.
A domicile of choice can be acquired by establishing residence in another country with the settled intention of remaining there indefinitely.
An individual will be resident in Ireland if:
- He / she spends 183 days or more in Ireland in any given tax year; or
- He / she spends 280 days in Ireland, in aggregate, in any given tax year and the previous tax year, except that if his / her presence in Ireland in either tax year is less than 30 days, in which case the 30 days are ignored in the calculation of any aggregate over a two-year period unless, at his option, he / she satisfies the tax authorities that he / she is in Ireland with the intention and in such circumstances that he / she will be resident in Ireland for the following year.
In considering the above time periods, an individual is deemed to spend a day in Ireland if he / she is present for any part of the day in Ireland.
An individual will be ordinarily resident in Ireland if he / she has been resident in Ireland for each of the three preceding tax years. Once an individual becomes ordinarily resident, he / she will only cease to be resident in his / her fourth year once he / she has been non-Irish resident for three consecutive tax years.
Notwithstanding that an individual may not be resident for a particular tax year, ordinary residence is sufficient to bring an Irish domiciled individual within the Irish charge to capital gains tax on worldwide disposals and certain of their worldwide income.
What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?
The Irish tax year operates on a calendar year basis, from 1 January to 31 December. The specific tax filing and payment deadlines depend on the nature of the tax being paid.
The standard rate of income tax is 20%; however, for earnings of EUR 35,800 or greater, the rate imposed is 40%. The current rate of CGT is 33%.
Self-assessment applies to all self-employed persons and persons who are receiving income that is not chargeable to tax under PAYE (see Question 3).
By 31 October in any given year, a taxpayer must:
- Pay preliminary income tax for that year;
- Pay the balance of their income tax liability for the previous year;
- File a tax return in respect of their income tax liability and CGT liability for the previous year. CGT liabilities can be declared in an individual’s income tax return.
CGT must be paid on or before:
- 15 December in any given year for gains arising between 1 January and 30 November in that year.
- 31 January in any given year for gains arising between 1 December and 31 December in the prior year.
The deadline for filing both income and CGT tax returns is usually extended by approximately two weeks where the individual files online via Revenue’s Online System (“ROS”).
Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
Pay-As-You-Earn (“PAYE”) – Employed persons are subject to a form of withholding tax called PAYE in respect of their employment income, such that income tax is deducted at source.
Dividend Withholding Tax (“DWT”) - DWT applies at a rate of 20% on the payment of certain dividends. An exemption from DWT may be available where the recipient individual is resident in another EU Member State or in a jurisdiction with which Ireland has a DTA, in
Deposit Interest Retention Tax (“DIRT”) – DIRT at a rate of 35% (2019) is deducted at source by deposit takers from interest paid or credited on deposits. A non-Irish resident can receive Irish deposit interest free from DIRT.
A buyer must withhold CGT when paying consideration in excess of EUR 1 million to a seller in relation to the sale of certain assets, mainly Irish immoveable property, and pay the tax withheld to the Revenue Commissioners.
Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?
There is no wealth tax in Ireland.
However, Irish-domiciled individuals who, in any given year, earn worldwide income in excess of €1m, own Irish property valued at greater than €5m, and have a liability to Irish income tax of less than €200,000, will be subject to a levy of €200,000 in respect of that tax year. This is referred to as the ‘domicile levy’.
The domicile levy is due on / before 31 October in the year after it arises. Individuals are permitted to offset the amount of income tax payable in the same year against the domicile levy.
Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
Yes, Capital Acquisitions Tax (“CAT”) is charged on the receipt of gifts and inheritances.
The charge to CAT is governed by the Capital Acquisitions Tax Consolidation Act 2003 (“CATCA”).
A charge to CAT will generally arise where:
- The donor / disponer is resident in Ireland at the date of the gift / inheritance;
- The recipient is resident in Ireland at the date of the gift / inheritance;
- The property comprised in the gift / inheritance is Irish situate property.
The recipient of a gift / inheritance will be subject to CAT where the value of the gift / inheritance exceeds his / her applicable CAT-free threshold amount.
The deadline for payment of CAT and filing returns will depend on the valuation date. The valuation date is also relevant when considering whether the recipient can avail of certain exemptions / reliefs from CAT.
The valuation date of a taxable gift is the date of a gift. The valuation date of an inheritance will vary depending on the nature of the assets comprised in the inheritance and the length of time it takes to administer the deceased’s estate.
An individual who is domiciled outside Ireland will not be resident or ordinarily resident for CAT purposes unless he is resident in Ireland in the year of the gift / inheritance and has been resident in Ireland in each of the preceding five tax years.
Payment of CAT is made by way of self-assessment. Where 80 per cent of the CAT-free threshold, which is appropriate to a benefit, has been exceeded, the person who is primarily accountable for paying the CAT is obliged to deliver a return and pay the tax due.
Where the valuation date falls within the period 1 September to 31 August the following year, the filing and payment date is 31 October of the following year.
Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (e.g. business or agricultural assets), and how do any such reliefs apply?
Yes, there are prescribed reliefs that apply to lifetime gifts and to inheritances on death.
Transfers between spouses / civil partners
Transfers between spouses / civil partners are exempt from both gift tax and inheritance tax, CGT (unless the recipient spouse is outside the CGT charge in the year of the gift), and stamp duty.
Business relief is available in respect of business assets and unquoted shares in trading companies or holding companies. The effect of the relief is that the taxable value of the business assets is reduced by 90%. The relief is subject to certain restrictions, including retention periods.
Agricultural relief is available for gifts and inheritances of ‘agricultural property’ (as defined in CATCA) taken by a person who is, on the valuation date and after taking the gift or the inheritance, a ‘farmer’ (as defined CATCA). The effect of the relief is that the taxable value of the agricultural assets is reduced by 90%. The relief is subject to certain restrictions, including retention periods.
If the recipient qualifies for both agricultural relief and business relief in respect of a gift or inheritance, he / she can only choose one relief.
Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?
In order for a charity to avail of tax relief on donations, the donation must, be made to an eligible charity, being a charitable body which was granted tax exempt status for a period of at least two years. The minimum donation on which tax relief may be obtained is EUR250 to any one charitable body in the year of assessment. The tax relief accrues to the charity at a blended rate of 31%, whereas the individual donor does not receive any tax relief or deduction for tax purposes. In comparison, corporate donors can avail of a full corporation tax deduction on donations to charitable bodies, as effectively the donations are treated as a trading expense.
There is relief from CGT on the disposal of an asset to a charitable body in certain circumstances.
How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
Irish source income, for example rental income from an Irish situate property, will be subject to income tax in Ireland on an arising basis, regardless of the tax profile of the tax payer. Non-resident individuals will be subject to withholding tax where they do not appoint an Irish resident agent to collect the rent and pay the tax due.
Capital gains arising on the disposal of ‘specified assets’, which are defined in Section 29 TCA 1997 as including land and buildings in Ireland, will be subject to CGT on an arising basis.
CAT will be imposed on a gift / inheritance of Irish situate property held by the donor personally. However, where Irish situate property is held by a non-Irish resident company, and the shares in such company are the subject of a gift / inheritance, the charge to CAT should not arise where the disponer of the shares is not domiciled in Ireland.
Stamp duty is charged on instruments, specified in the First Schedule to the Stamp Duty Consolidation Act 1999, which (a) are executed in Ireland or, (b) relate to any property situate in Ireland or to any matter or thing done or to be done in Ireland (irrespective of where they are executed). The rate of stamp duty applicable to the sale or transfer of residential property is 1% for the first €1,000,000 and 2% for any value over €1,000,000. The rate of stamp duty applicable to the sale or transfer of non-residential property is 6%.
Local property tax (“LPT”) is an annual self-assessed tax on residential properties, payable to the Revenue Commissioners. LPT is calculated based on the market value of the property at the valuation date. Taxpayers are required to self-assess for LPT.
Are taxes other than those described above imposed on individuals and, if so, how do they apply?
Pay Related Social Insurance (“PRSI”) – PRSI is Ireland’s equivalent of social insurance or social security. The amount of PRSI paid by an individual depends on that person’s earnings and the type of work they do.
Universal Social Charge (“USC”) – USC is payable on gross income, including notional pay, deductions for certain capital allowances.
Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?
Yes, Irish resident non-domiciled individuals may avail of the remittance basis of taxation in respect of their non-Irish / foreign source income and gains, subject to certain restrictions.
This means that Irish source income, and gains arising on the disposal of assets situated in Ireland, will generally be subject to Irish tax, but foreign source income and gains arising on the disposal of assets situated outside Ireland will only be subject to Irish tax to the extent that they are remitted into Ireland, or are deemed to be remitted into Ireland by virtue of specific anti-avoidance legislation. It should be noted that the remittance basis has been discontinued in respect of income from an employment exercised in Ireland with effect from 1 January 2006.
What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
The key steps that a non-Irish domicile individual should take are as follows:
- Segregate capital value and accumulated income and gains arising prior to the tax year in which the individual becomes Irish tax resident. These funds should not be mixed with income and gains arising in subsequent tax years, as they will collectively be considered as ‘clean capital’, which the individual can remit tax-free into Ireland.
- Rebase assets which have latent capital gains, to get an uplift in the base cost of the asset, provided it can be done in a tax neutral manner in the country of tax residence pre-entry.
- Receiving / gifting non-Irish situs assets to non-Irish resident individuals within the initial 5 years of Irish tax residence so as to avoid an Irish CAT charge arising.
What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?
Testate succession occurs pursuant to the terms of the Will of a deceased person.
Intestate succession is governed by the rules contained in the Succession Act 1965, and occurs where a deceased person either has not made a Will, or has not fully disposed of his free estate by the terms of his Will. The Succession Act 1965 sets out the division of a deceased’s estate where they die intestate.
There is a limited form of forced heirship under Irish law. The Succession Act 1965 provides for an absolute right of a spouse (same-sex also included since 2015) or civil partner of a deceased person to a fixed share in the deceased’s estate. This right is often referred to as the ‘legal right share’ and cannot be defeated by the provisions of the deceased’s Will. The percentage share entitlement of the spouse / civil partner will depend on whether the deceased dies with or without children.
The legal right share may be renounced in writing by a spouse after marriage or a civil partner after the civil partnership, but must be renounced during the lifetime of the testator.
A child of a deceased person has no specific entitlement to the deceased’s estate and merely has an entitlement to apply to court for relief, which may be granted if the court is of opinion that the deceased failed in his / her moral duty to make proper provision for the child in accordance with his / her means, whether by Will or otherwise.
Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?
There is no special regime for matrimonial property or the property of a civil partnership under Irish law.
What factors cause the succession law of the jurisdiction to apply on the death of an individual?
In accordance with Irish private international law rules concerning succession law, the devolution of the estate of a deceased person, will be by the law of the situs of the property in respect of immovable property and by The law of the domicile of the deceased person, in respect of movable property.
How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?
A conflict between the succession laws of Ireland and another jurisdiction will be determined by the principles of private international law. Ireland is not a signatory to the Brussels IV - Regulation (EU) No 650/2012 which came into force on 17 August 2015. However, to the extent that an Irish national owns property in an EU Member State other than Ireland, they can elect for Irish succession law to apply to the succession of such property. This will address the previous inconsistencies between the Irish private international law rules on succession and those of the contracting Member States to the Brussels IV - Regulation (EU) No 650/2012. Where an individual is habitually resident in Ireland, Ireland can still renvoi the matter of succession law to the Member State in which the deceased was domiciled and, pursuant to the said Regulation, the Member State can accept the renvoi. Renvoi is expressly excluded in the case of a validly elected law of nationality.
In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?
An individual should make a Will in all circumstances. As noted in Question 12, where an individual has not made a Will, the rules of intestacy would apply and the division of the individual’s estate would be determined in accordance with the Succession Act 1965.
A Will must be in writing, signed by the testator, and witnessed by two independent witnesses in the presence of the testator, in order for it to be valid. A foreign Will shall be valid if it meets any of the requirements of the Hague Convention on Testamentary Dispositions 1961.
How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?
The administration of an estate depends upon whether the deceased died testate or intestate.
Where the deceased died testate, the executors appointed under the Will are responsible for applying to the Probate Office to extract a Grant of Probate, which confirms the validity of the Will and the authority of the executors to deal with the estate. Once the Grant of Probate has issued, the executors are responsible for collecting in the assets of the deceased’s estate, paying the just debts and expenses of the estate, and distributing the assets of the Estate in accordance with the Will.
Where the deceased’s spouse has been left less than his or her legal right share under the terms of the Will, it is the duty of the executors to notify that spouse of his / her right of election (the right to choose whether to take the benefit under the Will, or claim his / her legal right share).
Where a person dies intestate, the person or persons entitled to the deceased’s estate pursuant to the rules of intestacy, may apply to the High Court for Grant of Representation, authorising that person or those persons to administer the estate according to the rules of intestacy.
Where the deceased’s personal representatives and the beneficiaries of the deceased’s estate are not resident in Ireland, the personal representatives are required to appoint an Irish solicitor as their agent to obtain a Grant of Representation.
Do the laws of your jurisdiction allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
Yes, the laws of Ireland allow individuals to create trusts, family companies and family partnerships. Private foundations cannot be established in Ireland.
A private limited liability company is usually used where the individual wishes to avail of separate legal personality and limited liability. However, trusts and partnerships are the most commonly used structures to protect wealth and assets for beneficiaries while incorporating tax and estate planning.
How is any such structure constituted, what are the main rules that govern it, and what requirements are there for registration with or disclosure to any authority or regulator?
All three structures referred to above are governed firstly by common law and secondly by specific statutory enactments.
The private limited company is constituted by the subscription of the shareholders to a constitution. The constitution must be filed, together with a Form A1, with the Companies Registration Office in Ireland in order for the company to be validly incorporated. A copy of the constitution will be available to members of the public. Following implementation of certain aspects of Article 30 of the Fourth Anti-Money Laundering Directive (EU 2015/ 849), by virtue of the European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016 which came into operation on 15 November 2016, all companies must keep a register of beneficial ownership. In due course, companies will be required to file this information with a central beneficial ownership register.
A trust will normally be established either by an express deed or declaration of trust, or under the Will of a testator. For a trust to be valid, there must exist three certainties: certainty of intention, certainty of subject matter and certainty of objects. With regard to a class of discretionary objects, it is necessary that it is possible to ascertain whether a particular person is or is not a member of the beneficial class at any given time. There is no governmental registration requirement. There is no central register of beneficial ownership or interests.
A partnership will normally be formed by written agreement executed by the partners, but a partnership can come into existence by oral agreement or indeed by the conduct of the parties. A limited partnership must be registered with the CRO.
What information is required to be made available to the public regarding such structures and the ultimate beneficial ownership or control of such structures or of private assets generally?
How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
In high level terms, a private limited company will be subject to corporation tax at a rate of 12.5% on profits. Directors of the company will be subject to income tax, USC and PRSI on their salary (which taxes will be paid via the PAYE system). Shareholders, who receive dividends from the company may be subject to DWT.
In relation to Irish resident trusts, settlors will usually only suffer a tax charge in respect of bare trusts settled for the benefit of minor children. As noted in Question 22, settlors will be subject to tax in respect of offshore trusts under the Irish anti-tax avoidance legislation. Trustees will usually be subject to income tax and CGT in respect of the income and gains arising within the trust, unless the trust is a bare trust. The applicable rate of income tax for Irish resident trustees is 20%. Trustees will also be subject to discretionary trust tax in the case of discretionary trusts. Beneficiaries will be subject to CAT on capital appointments from the trust, and will be subject to income tax on income benefits received. Where the capital value received includes accumulated income (which has not previously been converted into capital by exercise of the trustees’ power), they will be subject to income tax in the first instance and CAT on the net benefit received.
A limited partnership will be treated as transparent for tax purposes, and the partners will be subject to income tax and capital gains tax on the profits and gains arising within the partnership in proportion to their interest in the partnership.
Are foreign trusts, private foundations etc recognised?
Foundations are not recognised in Ireland. If a foundation was established outside of Ireland, the relevant law of the civil law jurisdiction where the foundation was established would need to be examined.
Foreign trusts are recognised in Ireland, provided that they comply with certain formalities and contain the essential elements of a valid trust in accordance with Irish law. Where the trust holds real property, the trust must be evidenced in writing, signed by a person who is able to declare the trust (as referred to in Question 19, the three certainties must exist for the trust to be valid).
How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
There are specific anti-avoidance provisions of Irish tax law which operate to tax the gains and / or income of non-Irish resident companies and trusts to Irish resident participators, settlors and / or beneficiaries as the case may be.
Significant changes to Irish tax anti-avoidance legislation for offshore structures were introduced in Finance Act 2017. In the context of capital gains, the motives for establishing a trust or disposing of an asset are now irrelevant, and the anti-avoidance provisions will only be disapplied where it can be shown that the offshore trust or company is carrying on ‘genuine economic activity’ within the EU / EEA. This is quite a significant restriction.
In respect of income, the motive defence remains available for structures established outside the EU / EEA only, and structures established within the EU / EEA must be carrying on a ‘genuine economic activity’ in order to avoid application of the anti-avoidance provisions.
To what extent can trusts, private foundations etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?
As noted above at Questions 18 and 21, foundations are not recognised by Irish law and cannot be established in Ireland.
Under the Land and Conveyancing Law Reform Act 2009, an individual cannot enter into a transaction with the intent to defraud creditors / third parties, either existing / or potential, by taking certain assets outside of the reach of such parties. Provided there is no intent to defraud, trusts can be used to shelter assets from the creditors of a settlor or beneficiary. However, certain provisions of Irish legislation, including the Bankruptcy Act 1988, the Succession Act 1965 and the Family Law Acts 1995, operate to set-aside certain transaction in the event of bankruptcy, death or divorce.
What provision can be made to hold and manage assets for minor children and grandchildren?
Assets can be held in a bare trust, an interest-in-possession trust, or a discretionary trust for the benefit of minor children of the settlor or minor children of a pre-deceased child of the settlor. A discretionary trust will defer a CAT charge from arising, and CAT will only become due when assets are appointed out of trust to the beneficiaries.
A charge to discretionary trust tax will arise after the death of the settlor, when all the principal objects (being the children of the settlor or the children of a pre-deceased child of the settlor) have reached the age of 21.
Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?
Individuals are advised to make an enduring power of attorney, which gives one or more persons authority to make personal care decisions and financial decisions on their behalf in the event that they lose capacity.
Following the commencement of the Assisted Decision-Making (Capacity) Act 2015 individuals will also be able to enter into various types of assisted decision making agreements depending on their level of capacity, and will also be permitted to enter into advanced healthcare directives which will allow them to outline their wishes and preference concerning healthcare treatment in the event that they lose capacity.
What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
Charitable bodies are regulated pursuant to the Charities Act 2009, by the Charities Regulatory Authority.
The most common forms of charitable structures are:
- Companies Limited by Guarantee (“CLG”), which are established by a constitution and incorporated in the Companies Registration Office like other private companies as referred at Question 19 above. CLGs are the most popular form of charitable bodies.
- Charitable Trusts, which are established by deed of trust.
- Unincorporated Bodies, which are also established by a constitution. However, unlike CLGs, these type of charitable bodies do not have limited liability and do not have a separate legal personality to their members.
What important legislative changes do you anticipate so far as they affect your advice to private clients?
Irish tax advice to private clients is subject to change following the publication of the annual Finance Bill in October of each year and the subsequent enactment of the annual Finance Act shortly thereafter.
The question of whether a central register of beneficial ownership for trusts will be established is also going to be very relevant.