Published December 2017
This country-specific Q&A provides an overview to private client law in Ireland.
It will cover taxes, succession laws, wills, trusts and their structures.
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/private-client/
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, although 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 of itself bring an individual within the charge to Irish tax.
Domicile is a common law concept. There are three categories of domicile – domicile of origin, of choice, and of dependence.
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 tax year; or
- He / she spends 280 days in Ireland in aggregate in a tax year and in the previous tax year, except that if his presence in Ireland in a tax year is less than 30 days, then those 30 days are ignored both for that tax year and in the calculation of any aggregate over a two-year period unless, at his option, he satisfies the tax authorities that he is in Ireland with the intention and in such circumstances that he will be resident in Ireland for the following year.
In considering the above time periods, an individual is deemed to be present in Ireland on any day in which he is present at any time of that day.
An individual will be ordinarily resident in Ireland if he has been resident in Ireland for each of the three preceding tax years. An individual will not cease to be ordinarily resident in Ireland unless he has not been resident for the three preceding 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 relevant taxes are income tax and capital gains tax (“CGT”).
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 33,800 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 CGT and income 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 a jurisdiction with which Ireland has a DTA or in another EU Member State.
Deposit Interest Retention Tax (“DIRT”) – DIRT at a rate of 39% 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 withheld amount 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 the 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 these purposes unless he has been resident in Ireland for the preceding five years.
Payment of CAT is made by way of self-assessment. Where 80 per cent of the class 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 (eg 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, they must 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 for an individual 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, and 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 are executed in Ireland or, wheresoever executed, relate to any property situate in Ireland or to any matter or thing done or to be done in Ireland. 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 commercial property is 6% following the enactment of Finance Act 2017.
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, after any relief for certain capital allowances but before pension contributions. Currently, if an individual earns EUR 13,000 or less per annum they will not be subject to USC.
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 taxation 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 an 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, to get an uplift in the base cost of the asset, provided it can be done in a tax neutral manner.
- 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 civil partner after the civil partnership but during the lifetime of the testator.
A child of a deceased person has no specific entitlement to his / her estate and simply 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 succession laws 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, including the question of forced heirship, is determined as to immovables by the law of the situs of the immovables, and as to movables, by the law of the domicile of the deceased person.
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 EU Regulation on Succession Law 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 EU Regulation on Succession Law. 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 he / she 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 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 executor’s duty to notify that spouse of his or her right of election as to whether to take under the will, or claim the legal right share.
Where a person dies intestate, the person or persons entitled to the estate pursuant to the rules of intestacy, or any one of a number of equally entitled, may apply to the High Court for letters of administration, authorising that person or those persons to administer the estate according to the rules of intestacy.
Where the personal representatives are not resident in Ireland, or some of the beneficiaries are not Irish resident, they are required to appoint an Irish solicitor as their agent to obtain a Grant of Representation.
Do the laws 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, is there any requirement for registration with or disclosure to any authority or regulator, and what information about the structure is available to the public?
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 (formerly a memorandum and articles of association). 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 can be ascertained whether a particular person is or is not a beneficiary 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, and usually under seal, 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.
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, 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 by Irish law. 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 accepted in Ireland, provided that they comply with certain formalities and contain the essential elements of a trust recognised in Ireland. Real property in trust must be evidenced in writing, signed by a person 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.
Finance Bill 2017 proposes significant changes to Irish tax anti-avoidance legislation for offshore structures. Going forward, the motive for establishing a trust or disposing of an asset are 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. The relieving provisions no longer apply to income or capital gains arising within structures located outside the EU / EEA. Indeed, it could potentially have ramifications for structures established in the United Kingdom post-Brexit.
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 of potential, by taking certain assets outside of the reach of such parties. Provided such an intention does not exist 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 could be held in a bare 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.
Where such children are under 21 years of age, the DTT levies do not arise and therefore, a charge to tax will not arise provided all of the assets comprised in the trust are appointed out to the beneficiaries prior to the youngest beneficiary becoming 21 years of age.
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, in which give 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.