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Wednesday, 5th August 2020
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HM Revenue changes to affect Irish ‘non doms’ in the UK Back  
The Finance Bill 2008 does not contain any provisions on capital gains, despite the fact that under UK law a non-domiciled individual is not liable to capital gains tax on gains arising outside the UK, including gains arising in Ireland, except to the extent that the gain is remitted into the UK, writes Jim Ryan, one of Ernst & Young’s Tax Partners.
Any discussion on the ‘remittance basis’ of taxation is meaningless without an understanding of what the remittance basis is. In its simplest form the remittance basis is the term used to describe the basis on which certain categories of tax payers pay tax only on income or gains arising in Ireland or brought into Ireland from other jurisdictions. These tax payers are generally those that are foreign domiciled non-Irish citizens, or indeed Irish citizens who have been tax resident outside the State for three consecutive years. Irish citizens falling into this category are entitled to benefit from the remittance basis for three years after their return to Ireland.

The UK also operates a remittance basis quite similar to the Irish system. Heretofore both the UK and Irish remittance basis did not recognise the other countries income as qualifying for the remittance basis. It should be noted that the UK does not impose capital gains tax on Irish source gains arising to individuals who are tax resident in the UK, but domiciled outside the UK, unless the gain is brought into the UK. Ireland does not distinguish between income and capital gains.

During 2007, a number of technical ‘report notes’ were published in the UK on HM Revenue and Custom’s (HMRC) website, one of which concerned a proposed amendment to the non-application of UK remittance basis rules to Irish source income. The proposed amendment will affect individuals who are tax resident in the UK but not domiciled in the UK, and who have investment income arising in the Republic of Ireland or work for an employer resident in the Republic of Ireland.

This restriction is to be removed from 2008-2009, i.e. with effect from April 6th 2008, so that the same rules apply to all foreign investment income, regardless of the country of origin.

Individuals who are resident and ordinarily resident but not domiciled in the UK face a similar restriction in relation to earnings from employment with an employer resident in the Republic of Ireland. This is currently taxed on an arising basis and the remittance basis is not available. This restriction is also to be removed from April 6th 2008. However, the remittance basis for employment income in the UK does not (and will not) apply where the duties are exercised in the UK even where the employer is non resident.
The Irish remittance basis provisions contain a corresponding restriction for UK source income and gains. On March 30th 2007, the European Commission sent a reasoned opinion to Ireland asking it to amend its remittance basis taxation rules to remove the discrimination against UK source income, but not capital gains. It indicated that it would be requesting further information from the UK on its regime.

In a move to acknowledge the discriminatory nature of the Irish legislation, the Finance Bill 2008 contains amendments to Ireland’s remittance basis rules. Subject to the passing into law of the Finance Bill, Ireland, with effect from January 1st 2008, treat UK source income in a similar manner to all other foreign source income, that is it will be taxed on a remittance basis. What is interesting to note is that the Finance Bill 2008 does not contain any provisions on capital gains, despite the fact that under UK law a non-domiciled individual is not liable to capital gains tax on gains arising outside the UK, including gains arising in Ireland, except to the extent that the gain is remitted into the UK.

In conclusion, the Irish Revenue has only moved the goal post slightly closer together. It will be interesting to see whether the Finance Act 2008 will address the matter of capital gains or indeed whether the European Commissions will have to specifically address the issue of capital gains before any further amendments are introduced in Ireland.

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