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My client lives in Dublin, from where he runs a business, paying tax in Eire. He also works in the UK for two full days each week, flying in on the evening of day one and out on the morning of day four. This is not his own business and his salary is taxed in the UK under PAYE. He rents a property in the UK for his occupation while working here.
My client lives in Dublin, from where he runs a business, paying tax in Eire. He also works in the UK for two full days each week, flying in on the evening of day one and out on the morning of day four. This is not his own business and his salary is taxed in the UK under PAYE. He rents a property in the UK for his occupation while working here.
Can readers give me some guidance as to his residence status and the tax implications on his UK and Irish income sources? His financial adviser is suggesting various investments for his money, but is unsure whether this should be invested 'offshore'.
Query T16,717 — Shamrock.
Reply by Brumus:
The thing we don't know is where the client is domiciled. From the information given by Shamrock, I would guess that it is in Ireland as he 'lives in Dublin, from where he runs a business', but this is not conclusive and Shamrock will need to research and establish this as a priority.
Tolley's Taxation in the Republic of Ireland states (at 27.1) that a day at the end of which the individual is present in Ireland is counted as a day of residence there. As he spends the nights of days four, five, six and seven of each week in Ireland, this translates as 208 days per annum and he will be resident if he spends either more than 183 days each year there or more than 280 in the current and preceding year of assessment. On that basis, the client will be resident in Ireland. However, to complicate matters, it seems possible (depending on his initial intentions regarding the employment here) that he is also resident in the UK as he is regularly spending more than 90 days in this country each year. In those circumstances, the double taxation agreement between the UK and Ireland provides a tie-breaker clause (Article 4 — fiscal domicile) to determine the country of residence based — in priority — on:
(a) where he has a permanent home available to him;
(b) where he has his 'centre of vital interests';
(c) where he has an habitual abode; and
(d) of which state he is a national.
If none of the above factors is conclusive, the contracting states must settle the question by mutual agreement.
It seems likely that his 'permanent home' is in the Republic of Ireland and he would be resident there for the purposes of the double taxation agreement. I do not see that the rented property has any other implications in this case. Article 15, 'Employments', of the double taxation agreement then comes into play. The UK salary would be taxable only in Ireland if:
'(a) the recipient is present in the other state for a period or periods not exceeding in the aggregate 183 days in the fiscal year concerned; and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other state; and
(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other state.'
Condition (a) is satisfied, but (b) and (c) are not, so PAYE is properly implemented. The client can then claim double taxation relief in respect of the UK tax against the Irish liability. Subject to my comments below, this UK income will be subject to Irish tax on an arising basis whether or not he is domiciled in Ireland, under Taxes Consolidation Act 1997, s 71(3). (See the Residence Manual (6.4) at www.revenue.ie/services/foi/s16_2001/residnce.pdf.)
Having said that, I believe that the client could claim 'trans-border workers' relief, which basically reduces the Irish tax liability on total income by the proportion that the qualifying non-Irish income bears to the total income. Details of the conditions and examples can be found in leaflet RES1 (see www.revenue.ie/leaflets/res1.pdf at 3.12).
If the client is domiciled and resident in Ireland, then (subject to the reliefs above) his worldwide income will be taxable there. However, if he was not domiciled in Ireland (perhaps in the UK), but is resident in Ireland, then non-Irish/non-UK (foreign) offshore investments could be beneficial, as they would not be taxed in Ireland unless remitted there.
Class 1 NICs would be payable in the UK. (See Tolley's National Insurance Contributions 2005-06 (49.8.)
Reply by Bogged down:
The residence of this particular individual would appear to be Ireland based on days spent in and out of the UK. Invariably the 'dependent personal services' article in a double taxation treaty (SI 1976
No 2151) will cover the taxation position of wages, salaries and other remuneration from employments. Thus salaries, wages and other similar remuneration derived by a resident of one contracting state in respect of an employment is only taxable in that state, unless the employment is exercised in the other contracting state when such remuneration as derived therefrom may be taxed there if the following conditions are met:
1. the recipient of the salary, etc. is present in the country for not more than 183 days in a period of twelve months;
2. the remuneration is paid by, or on behalf of, an employer who is not a resident of the other country; and
3. the remuneration is not borne by a permanent establishment or fixed base which the employer has in the other country.
In this case, points 2 and 3 above fail and therefore the tax will be deducted rightly under PAYE for which he will receive relief under a foreign tax credit claim in his Irish tax return.
With regard to the property rental costs, it is difficult to envisage a claim being successful for the expenses incurred to be offset under a claim against the PAYE income arising in the UK.
Any planning with regard to offshore investments would have to be subject to taxation in Ireland on a worldwide basis, but there may be opportunities for tax deferral on investments, which would be better advised by an offshore provider of financial services. One area that should be looked at is the opportunity for pension planning in respect of the UK sourced income with the attractions of tax relief at the individual's marginal rate.
With regard to UK Class 1 National Insurance contributions, there should be no 52-week exemption period, as even though he is not resident in the UK his employment is with a UK host employer.
Extract from reply by N.K.:
We have not been told the domicile status of the client, but it sounds Irish to me!
The fact that the client rents and has available for his use accommodation in the UK is no longer an important criterion in determining the residence factor. This factor ceased as from 6 April 1993.
The two days per week visits to the UK total (say) 104 days per year. Using this figure, with an assumption that this routine has been going on for some time, then following the rules about residence in the UK as per page 16 of HMRC's booklet IR20, Residents and non residents, the client appears to be a 'dual-resident' in both the UK and Ireland.
The Tax Return Help Sheet IR302 for 'Dual Residents' gives guidance as to how to treat the position as described using 'The OECD Model Tax Convention Residence Tie-Breaker Rules'.
HMRC's International Manual at INTM154020 and INTM154040 gives detailed information as to the procedure needed if, as mentioned, the client is an Irish national and he wishes to claim exemption from UK tax. Completion of a tax return will be needed which will need to be submitted to the Centre for Non-Residents, together with a certificate of residence from the Irish Revenue, and pages 5 to 8 of Help Sheet IR302.
For Irish tax purposes, days spent working in the UK do not count as having spent time working abroad in order to qualify for the 'foreign earnings deduction', which for 2005 is 31,750 euros.
