Zero Tax Credits - Is This Possible?

Ignorant etc.

We, as a family, are moving to the UK. We have a mortgaged house here in Ireland which we will be looking to let. I was talking to an accountant about our tax liability situation and she told me I would effectively have ZERO tax credits.

This is how it was explained to me.

The UK and Ireland have a double taxation treaty, but the accountant explained to me that both countries will look at our taxation liability on a worldwide basis.

I am tax resident in the UK as I have not spent 183 days in Ireland this year and will not have done so even by the end of the year. I will have done so in the UK, however, so I will be UK tax resident.* My wife, however, will be tax resident here. We have been told that we can, as a married couple, have different tax residencies.

In the UK, you start to pay tax after you earn £10,000, much as you do in Ireland after €16,500 (I know this can be different for different people, but I'm saying this for easiness).

So, lets say my income is £20,000 (not too far off) then I will owe Revenue and Customs in the UK 20% on £10,000, i.e. a PAYE tax liability of £2000.

However, as we are letting in Ireland, the Irish revenue will want to know about my income in the UK AND in Ireland. As I am non-tax resident in Ireland, I will not be eligible to ANY tax credits in Ireland. This is where the problem lies.

The accountant told me that the Irish revenue will look at my full income; £20,000 in the UK and lets say €5000 rent which together, converting to euro, is €29920.34 and will charge me 20% of the WHOLE amount, thus negating my British tax credit.

So the whole amount owed would be €5984.07. The tax I pay in the UK will be deducted from this amount (£2000 in € = €2492.03) and I will be left with a tax bill of €3492.04 owing to Irish revenue.

She explained this by saying that because I have no tax credits in Ireland, Irish revenue will look for 20% of the £10,000 tax-free pay that the British revenue and customs allows me.

Is this true? Please can someone advice as I'm having palpitations over this? It seems very unfair that my tax credit in the UK should be cancelled just because I let a house in Ireland.



*Actually, I'm a little confused about this, if you count my days spent in Ireland across 2013 and 2014 it would amount to 280, but across 2014 and 2015 there is no way it will. However, I will also be tax resident in the UK for 2014 - 2015 (tax year in the UK starts in April and ends in March). Is it possible to be tax resident in both the UK AND Ireland?

Mr. Incognito

That is incorrect.

You can both elect non residence from the date of leaving under Section 822.

This will deem you non resident from the date you leave. if you are non resident then, yes you have no entitlement to any credits.

If you are working in the UK then they will have primary taxing rights on your employment income

If you have Irish source income from an Irish Property then the Irish property will be subject to tax. You can deduct the costs of the rental from the Case V computation

In the UK return you will have to declare the Irish rental income and will receive a credit for the Irish tax paid on it.

In Ireland, if you have Irish income you will have to file a return for the rental income you receive. As you will not be tax resident by virtue of S 822 the income tax should be ringfenced to the Irish source asset. If you were Irish tax resident and filing an Irish return then you would have to disclose your UK Rental income which would form part of your taxable income and you would receive a credit for the UK Paye paid after an effective rate calculation which must be completed as there is a difference in the income tax rates

I suggest you hire an accountant that is familiar with tax law. Ask if they are AITI qualified and if they are not go to a different accountant.

There are CGT considerations if you turn your PPR into an investment property which should also be explained to you.

Ignorant etc.

Mr. Incognito wrote: »

That is incorrect.

You can both elect non residence from the date of leaving under Section 822.

This will deem you non resident from the date you leave. if you are non resident then, yes you have no entitlement to any credits.

If you are working in the UK then they will have primary taxing rights on your employment income

If you have Irish source income from an Irish Property then the Irish property will be subject to tax. You can deduct the costs of the rental from the Case V computation

In the UK return you will have to declare the Irish rental income and will receive a credit for the Irish tax paid on it.

In Ireland, if you have Irish income you will have to file a return for the rental income you receive. As you will not be tax resident by virtue of S 822 the income tax should be ringfenced to the Irish source asset. If you were Irish tax resident and filing an Irish return then you would have to disclose your UK Rental income which would form part of your taxable income and you would receive a credit for the UK Paye paid after an effective rate calculation which must be completed as there is a difference in the income tax rates

I suggest you hire an accountant that is familiar with tax law. Ask if they are AITI qualified and if they are not go to a different accountant.

There are CGT considerations if you turn your PPR into an investment property which should also be explained to you.

Thank-you for your response. That clears it up concisely and stops the worry. I understand about CGT if we are non-resident and sell the property should it make a profit. As I understand it, if we made €10,000 on the sale and are non-resident then we would be charged 33% CGT, effectively €3,300. As we are not currently in a position to sell the property, due to negative equity, this isn't a present concern as we may even have returned to Ireland by the time we come to sell.

Two quick questions.

Something that has come to mind. As a lay person in terms of taxation, I assumed, until now, that the double taxation meant that what you earned in Britain was Britain's concern and what you earned in Ireland was Ireland's concern. When I left last August, I didn't elect to be non-resident, I just left. I earned zero income in the UK, and will continue to have earned zero UK income up until I start work there in September. However, as I was studying, I did receive a grant. This grant was awarded by the UK government and the UK treated it as a non-taxable income. However, because I earned both as a PAYE worker and a small sum via other income (less than €3175) before I left Ireland last September, I filed a form 12 to revenue in Ireland. I didn't put down the UK grant because I slightly misunderstood the double taxation treaty. However, is this OK in view of the fact that the UK treated it as a non-taxable income or should I contact revenue in Ireland to amend this? Furthermore, if I should have informed revenue of this non-taxable (according to British law) sum can I retrospectively declare that I had left the state?

The other question is, as the rental profit we will make will be minor (lower than €3175) would it be sufficient to submit it on a form 12 or must we, as we have no Irish PAYE income, submit it via form 11?

Ignorant etc.

Sorry, I should have also asked should we be looking to appoint a British tax accountant or an Irish one?

Mr. Incognito

A form 12 is for PAYE employees that have other source income. You will have to file it on a Form 11 and there is a shortened form 11 available.

The purposes of S 822 is that you are leaving with the intention of being non resident the following year. It is not possible to declare retrospectively what your intention is, as such S 819 applies to tax you from after the date you left until December. If the grant was minimal then you should have enough credits to wipe out any Irish liability.

You can file it now with the covering letter saying that you are non resident for the remainder of 2014 with the intention to be non resident in Ireland in 2015

In addition Split year relief only applies to employment income and not if you or your wife were self employed.

Double taxation relief means that when you are taxed twice in both jurisdictions you get relief from the jurisdiction that does not have primary taxing rights.

If the UK taxed UK only and Irl taxed Irl only there would be no need for Double taxation treaties. The complication arises that in both jurisdictions if you are resident and domiciled then you are taxed on your worldwide income.

The CGT concern is that once your property becomes an investment property then you will have to pay NPPR taxes and no longer are exempt from CGT.

Anyway, like I said- get someone competent. This is merely an internet forum and you should not rely on any information you read here.

I would hire a UK accountant if you are based in the UK going forward but probably do the Irish retrospective filing yourself. It would be pretty straightforward

Ignorant etc.

Great, thanks for your help.

Just to clear up on the UK grant. I rang Irish revenue. If its non-taxable under UK law its non-taxable under Irish law.

Oh goodness, I need a drink .

Mr. Incognito

Ignorant etc. wrote: »

Great, thanks for your help.

Just to clear up on the UK grant. I rang Irish revenue. If its non-taxable under UK law its non-taxable under Irish law.

Oh goodness, I need a drink .

I wouldn't take that as gospel.

The people answering the phones in Revenue are mainly first year Clerical officers who can barely spell tax.

It might be exempt under UK law as part of a legislative grant scheme. Ireland may not have equivalent relief. I would seek that in writing and you'll see how quickly that answer dries up.

kranbo

Mr. Incognito wrote: »

I wouldn't take that as gospel.

The people answering the phones in Revenue are mainly first year Clerical officers who can barely spell tax.

It might be exempt under UK law as part of a legislative grant scheme. Ireland may not have equivalent relief. I would seek that in writing and you'll see how quickly that answer dries up.

FYI - Very few 1st year clerical officers working in Revenue