Republic of Ireland
The tax revenue in Ireland is called the Irish Tax and Customs which has a very similar tax system than the UK. Ireland is known for its very generous corporation tax rates and tax-free lump sum allowance on pensions. Ireland is home to 300,000 British Expats, many whom have UK pensions. This text will illustrate what your best options are for your UK pension as well as explaining what the local tax rates are and who they apply to. The areas we will cover include:
- Defining a Tax Resident in Ireland
- Resident and domicile
- Resident and non-domicile
- Ordinary Resident and Domicile
- Non-Resident and non-domicile
- Income Tax in Ireland
- Universal Social Charge (USC)
- Tax Credits and Tax Allowances in Ireland
- Capital Gains Tax (CGT)
- Deposit Interest Retention (tax on bank accounts and savings accounts)
- Capital Acquisitions Tax (Gift Tax, Inheritance Tax and Discretionary Trust Tax)
- Corporation Tax
- Options with your UK Pension
- Leave your Pension where it is
- SIPPs in Ireland
- Taxation of a lump sum
- Transferring to a QROPS for Irish Residents
- Overseas Transfer Charge
It is important to note that the information provided on this website is just a guide, hence before making any decisions it is always advisable to talk to a tax adviser.
Defining a Tax Resident in Ireland
It is important to note that the Irish tax year runs from the 1st January to the 31st December.
In Ireland you can be deemed a ‘tax resident’, an ‘ordinary resident’ or ‘domiciled’. It is important to understand what type of resident you are is it affects how you are taxed.
You are deemed as ‘tax resident’ in Ireland if the following apply:
- You remain in Ireland for more than 183 days in a calendar year.
- If you live in Ireland for 280 days or more over two consecutive years, you will be considered an Irish resident in the second year.
You can either elect to be ‘ordinary resident’ providing that you are ‘ordinary resident’ the following year or you can be deemed ‘ordinary resident’ if you following apply:
- If you have been tax resident for the previous three tax years, then you will become an ordinary resident in year four.
- If you leave Ireland, you will continue to be an ordinary resident until you have been a non-resident for three years.
You may also be deemed ‘domiciled’ in Ireland if you have the intention of residing there permanently. Usually, you are deemed ‘domicile’ in Ireland if you were born there. Domicile was introduced in 2010 which levies a tax on anyone who is Irish domicile regardless if they are Irish resident or not. The levy applies to anyone with either worldwide income over €1m, Irish located property that is worth more than €5m, or those whose income tax liability in Ireland is less than €200,000 in the given year.
Below are examples of how you will be taxed depending on what resident and domicile status you are.
Resident and Domicile
An individual who is resident and domiciled will be liable to Irish tax on worldwide income including foreign investment income.
Resident and non-Domicile
An individual who is resident but non-domiciled will be liable to Irish tax as follows:
- Employment Income – the individual will be liable to pay Irish income tax on Irish employment. They will also be liable to Irish income tax on non-Irish employment if their duties relate to Irish workdays and this income is remitted to Ireland.
- Investment income – Individuals will be liable to pay investment tax on Irish sources, not worldwide sourced investments so long as it isn’t remitted into Ireland.
Ordinary Resident and Domicile
An individual who is an ordinarily resident and domiciled is liable to Irish tax on worldwide income, including foreign investment income. However, any foreign income, whether employment or investment, is not liable to Irish tax if under €3,810 in a given tax year.
Income Tax in Ireland
Income tax from employment in Ireland is deductible at source via PAYE as in the UK. At the beginning of the year, the Revenue Commissioner will send a notice of determination of tax credit and a standard cut off point which determines the rate of tax you will pay along with any tax credits that apply. This is sent to the individual and the employer. If your employer does not receive this or it is your first time in work, you will be taxed temporarily called an emergency tax.
Ireland only has two brackets of tax bands – 20% is ‘the standard rate’ and 40% is the ‘higher rate’. The tax band depends on the category of the individual, which is as follows:
|Category||Standard rate of tax – 20%||Higher rate of tax – 40%|
|Single Person||€33,800||€33,801 Plus|
|A married couple, one income||€42,800||€42,801 Plus|
|A married couple, two incomes||€67,600 (subject to rules)||Balance above threshold|
|One parent family||€37,800||€37,800 Plus|
Universal Social Charge (USC)
USC is a tax chargeable on gross income, including notional pay, after relief for tax allowances and credits but before pension contributions. The 2015-16 rates are as follows:
|€12,012 – €18,668||3%|
|€18,668 – €70,044||5.5%|
There can be reduced rates of USC depending on your circumstances. There is also a surcharge of 3% for an individual who has non-PAYE income that exceeds €100,000 in a year. Please note, allowance or credits aren’t allowed to be offset against USC.
Tax Credits and Tax Allowances in Ireland
Tax credits are deducted on the total taxable amount at the end of the year which reduces the amount of tax you have to pay. They can be carried forward one year. Few tax credits are awarded automatically whereas others need to be claimed annually.
Tax allowances also reduce the amount of tax you pay. It is subtracted from the income before it is taxed. This allows income relief up to your highest marginal rate of income tax.
Tax credits and tax allowance can be given for several things such as; your age, if your blind, if you have an incapacitated child, if you are a widower and so on. To find a full list of tax credits please visit the Irish Tax and Customs website www.revenue.ie/en/tax/it/credits/index.html
Capital Gains Tax (CGT)
Capital gains tax is a flat rate of 33%. This rate has increased significantly since 2008. The first €1,270 of chargeable gains in any given year is tax-exempt.
Deposit Interest Retention (tax on bank accounts and savings accounts)
There is a flat rate of tax of 41%.
Capital Acquisitions Tax (Gift Tax, Inheritance Tax and Discretionary Trust Tax)
The standard rate of tax is 33% for gifts and inheritance. Gifts apply to any disposal of property. Various exemptions apply to gift and inheritance such as the first €3,000 gift by a beneficiary is tax-free in any given year. To find a full list of exemptions please visit the Irish Tax and Customs website. (http://www.revenue.ie/en/tax/cat/guide/exemptions.html)
Corporation tax in Ireland is taxed differently depending on where the income is derived from:
- 12.5% rate for trading income
- 25% for non-trading income, such as investment income.
Please note the corporation tax rate for trading income is 25% if the income is from ‘excepted trade’. This includes trades such as land dealing, mineral work and petroleum activities.
Options with your UK pension
- Leave your UK pension where it is
- Transfer to a SIPP
- Transfer to a QROPS
Leave your Pension Where it is
For many people, leaving your pension where it is may be the best option. Some pensions have very good guarantees before and after retirement as well as on death. Other pensions may have restrictions about how you can access your funds, high fees, limited investment and currency options among other things. Understanding what your pension offers you as well as understanding what your needs and objectives are is important before looking at other options.
SIPPs in Ireland
If you are a British Expat and you are residing in Ireland, it is extremely important to understand your options regarding your UK pension as this can significantly boost your retirement income. If you are resident in Ireland you have the option of transferring your pension to a SIPP which offers the following benefits:
- Payments from your UK pension will be taxed as ‘earned income’ at source by HMRC. You will also be liable to pay tax in Ireland at your marginal rate of income tax. Many individuals are unaware that UK tax still applies even though they are no longer UK resident, although this can be claimed back under the double taxation treaty.
- You will be entitled to a 25% lump sum from the age of 55.
- You will be able to withdraw from your pension via drawdown or Flexi-access.
- You can withdraw 100% of your pension from age 55.
- Much greater investment choice.
- Have your pension denominated in any major worldwide currency.
- You will be subject to any UK pension legislation changes.
- Lifetime allowance of £1m. Anything in excess can be taxed up to 55% depending on how you take your benefits when you retire.
- UK pension death tax applies to UK pensions regardless of where you are resident. This means if you die after the age of 75, your pension will be taxed at your beneficiary’s marginal rate on receipt up to 45%. This may also be claimed back from HMRC.
Taxation of a lump sum
The taxation of lump sums differs between the UK and Ireland. In the UK you can withdraw a 25% tax-free lump sum from the age of 55 providing your pension pot is less than the lifetime allowance, which is currently £1m for 2015-16. The lump sum in Ireland can be taxed depending on the size of the lump sum which is as follows:
|Up to €200,000||0%|
|€200,001 – €500,000||20%|
|€500,001 plus||Taxpayers marginal rate of tax|
Transferring to a QROPS for Irish Residents
Irish residents have the option to leave their pension in the UK or transfer it to a QROPS in a tax neutral jurisdiction such as Malta and Gibraltar. The latter option is often a lot more beneficial for the individual. QROPS stands for ‘Qualifying Recognised Overseas Pension Scheme’ which was designed by HMRC in 2006 to allow anyone with a UK pension to transfer their pensions overseas. QROPS can offer significant tax advantage as well as greater growth opportunities and currency choice. There are over 45 jurisdictions and over 3,500 different QROPS providers.
Benefits of a QROPS include:
- There will be no ‘overseas transfer charge’ providing you remain an EEA resident for 5 years from the date of transfer (please see more details below).
- Your funds will grow tax-free.
- No UK Inheritance Tax will apply.
- No lifetime allowance.
- You will be able to take a 30% lump sum.
- You can choose to have your funds invested in GBP, EUR or any major global currency.
- You have a much greater investment choice.
- You will not be liable to UK pension legislation changes.
- UK pension death tax does not apply to QROPS, meaning 100% of your pension fund passes to your beneficiaries free of tax.
Transfers not affected by the overseas transfer charges
If the following criteria apply to you, you will not be subject to the overseas transfer charge:
- Your pension transfer is to a QROPS in the EEA and you are a tax resident within the EEA (i.e. any country within the EU and also Liechtenstein, Norway and Iceland and Gibraltar)
- Your pension transfer is to a pension scheme in your country of residence (eg. if you are a tax resident in Australia and you transfer your pension to an Australian QROPS)
- Transfers which are subject to unauthorised payments because they are not recognised transfers
- You are a former employee of an international organisation that has set up a QROPS specifically to provide benefits for former employees
- You are transferring to a QROPS which is an overseas public service pension scheme you are employed by an organisation participating in that pension scheme.
- You are an employee of an organisation sponsoring an occupational pension which qualifies as a QROPS
Transfers affected by the overseas transfer charge
It is important to note that not all QROPS pension transfers will be subject to the new overseas transfer charge.
However, if you request a transfer on or after the 9th March 2017 AND any of the following criteria apply to you, you will be required to pay 25% of the value of the transfer in advance:
- You are not a tax resident in the EEA and the pension transfer is to a QROPS in a country other than your country of residence (i.e. if you are a tax resident in the UAE and your QROPS is in Malta).
- You are a tax resident in the EEA and the pension transfer is to a QROPS outside of the EEA (e.g. you live in France and your QROPS is in Australia)
- You (the member) has not provided all the required information before the transfer is complete
- If you requested your pension transfer before 9th March 2017, but not completed and the funds are then sent to a different QROPS which was not the scheme included in the original request.
- When the transfer was requested you were either transferring your pension to a QROPS in your country of residence, or you were a tax resident in the EEA and transferring to a QROPS also in the EEA, however, within five years of the transfer your circumstances change such that you no longer meet the above criteria. For example, if you move outside the EEA or transfer your QROPS funds away from your country of residence.
*Please note: The information provided is general information on the basis of our understanding of the current Irish tax legislation as of May 2016. Should any of the information be inaccurate or misleading, we take no responsibility for any reliance placed on it. We recommend that individuals always seek specialist advice before making any decisions.
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