Key Post Should you keep an Irish property while in the UK?

ronaldo

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Brendan has asked me to do a Key Post on this, so here it is. Let me first state that I’m not a tax professional – just someone who’s investigated the area extensively for my own tax returns. Feel free to PM me or add a comment if you have any suggestions for changes or notice any errors

What are my responsibilities as a UK-resident owner of Irish investment property?
  • You need to register for self-assessment with the Irish Revenue and the UK HMRC. You may already be registered with Irish Revenue if you already had rental property and I advise you to apply for the HMRC Online Self-Assessment as soon as possible because they are very strict with regards to penalties for late filing and it can take some time to get your UTR (Unique Tax Reference number) required for online filing. The fines are:
  • A flat penalty of £100 if your return is one day late - even if you have no tax to pay
  • An extra £10 per day up to a maximum of £900 for 90 days late - meaning a total penalty of £1,000 for a 90-day late return
  • An extra £300 or 5% of the tax due, whichever is the higher, if your return is 6-12 months late
  • An extra £300 or 5% of the tax due, whichever is the higher, if your return is more than 12 months late
  • …. So someone with little, or no, tax liability could face a penalty of £1,600 for filing a year late

  • You need to nominate a ‘collection agent’ located in Ireland whose duty it is to file your returns. I believe this is to give revenue the comfort of knowing that there is someone in Ireland to chase if returns are not filed. This can be a letting agent but can also be a friend or family member. Personally, I’ve heard of people (and am one myself), who do not have a nominated collection agent and haven’t been called out on it yet – nor do I believe revenue will have a problem as long as my returns are consistently returned on time (please, do not take this as advice to do the same). Officially, if you do not have a collection agent, your tenant is supposed to withhold 20% of rent, submit it to the Revenue and provide you with a document detailing the tax paid – I’ve heard of tenants who withheld rent and didn’t submit the tax. I’m not sure what happens in such cases but you’re better to avoid such headaches where possible. If my tenant insisted on withholding rent for such reason, I’d go ahead and nominate a collection agent.
  • You need to register every new tenancy with the PTRB – this must be done every 4 years or with every new tenant (whichever comes first). Failure to do so has serious repercussions with regards to the ability to claim mortgage interest as an expense against rental income.
  • You need to file returns for the Irish tax year (the calendar year) and the UK tax year (6th April to 5th April).
  • The deadline for UK returns is 31st October for paper returns and 31st January for online returns. For Ireland, it’s 31st October and there’s usually a couple of weeks extension for filing online (but don’t rely on this being available and aim to file earlier).

What do I need to know about Capital Gains Tax (CGT)?

If your property is worth more than what you paid for it and it was your PPR, you should seriously consider selling it and avoiding putting it in a position where it is then liable for CGT.

The gain in property value, less allowable expenses, is liable to Irish CGT at 33% (the first €1,270 of taxable gains in a tax year are exempt from CGT). If you sell it before you became UK resident, you shouldn’t need to notify HMRC in the UK. If you sell it after becoming UK resident, you need to include the sale on both your Irish and UK tax return.

The UK CGT tax is 20% and the tax-free exemption is £10,900 for the 2013/14 tax year. If you are a UK resident, you get a credit for Irish tax paid. Therefore, as more tax is due in Ireland than would be in the UK, the Irish CGT is your total liability.

If the property is loss making, I think that you are better waiting until you are UK resident before selling it. This is because, as far as I’m aware, the loss can be carried forward against future CGT due in the UK, as well as Ireland, if you do this. As no CGT would have been due on a gain before moving to the UK, no CGT loss can be carried forward on sales before doing so.

What do I need to know about Income Tax?

The income tax due on Irish income is a flat 20% and you may be entitled to a proportion of your Personal Tax Credit as an Irish Citizen. The amount you are entitled to is worked out using the following formula:

Allowances / Tax Credits x Income within the charge to Irish tax / Total worldwide income

You can also offset allowable expenses against rental income (including 75% of mortgage interest if you are registered with the PTRB).

If you earn above the standard Irish tax band in Irish-only income, you’ll pay 41%. This is €32,800 for 2014 so, if you are earning such a high income in addition to your UK income, you should be getting professional advice.

The UK will tax your rental profits at your marginal rate, with an allowance for Irish tax already paid. For 2013/4, the rate is 20% if your total earnings (Irish and UK), is below £41,450 and 40% on anything over.

If you are a 20% tax payer, your total tax liability will be the higher of that calculated in the UK or Ireland (with the majority of it paid to Irish Revenue and the balance, if any, to HMRC). The total liabilities calculated under each tax system are usually similar and, in my experience, the liability calculated under Irish rules is usually the total liability. This is primarily because the UK allow 100% of mortgage interest to be offset against rental income.

If you are a 40% UK tax payer, the majority of Income Tax will be paid to Irish Revenue but you are very likely to have additional tax to pay to the UK HMRC.

What about PRSI and USC?

As a non-resident, you have no liability to PRSI.

With regards to USC, you have no liability if your Irish income is less than €10,036. Most people with a single property will fall under this category. If your Irish income is between €10,036 and €16,016, you would be liable to 4% USC on the entire income. If your Irish income is over €16,016, you are liable to 7% on the entire income.

As you can see, if owning two properties pushes you slightly over the €10,036 limit before which you pay USC, the removal of your liability to 4% USC is an added bonus to be considered when determining whether or not to sell one of your properties.

Any other differences between the UK and Ireland I should be aware of?

As stated above, a 20% tax-payer in the UK will have very similar tax liabilities under both systems. The amounts can be different due to the following main factors:

  • The UK tax year is different to that in Ireland;
  • The UK allow 100% of mortgage interest to be offset against rental income;
  • In Ireland, Wear & Tear is calculated at 12.5% of the value of fixtures and fittings annually whilst, in the UK, it’s usually calculated at 10% of the rent charged for a furnished property.
Taking the above into consideration, it’s usually the Irish tax liability that represents the total liability for a 20% UK tax-payer – but not always.

So, should I keep the property?

This is a complicated one and you’ll obviously need to do the figures for the property. An example of figures would be:

Property Value|€200,000
Property Cost|€100,000

Gain in Value|€100,000
Annual CGT Exemption|€1,270
Taxable Gain|€98,730
CGT Due|€32580.90

Proceeds from Sale|€167,419.10

Annual Rent|€8,000
Gross Yield|4.78%

In the above case, the property is probably worth selling because 4.78% is achievable elsewhere, without the trouble encountered by keeping the Irish property (and your net return (after expenses) on the Irish property will be significantly less than 4.78%).

If the gross yield were above 7%, you’d need to delve deeper into the figures, including expenses and whether or not you have a mortgage.

In the UK, you can open an ISA account and invest up to an annual allowance which, in 2014, is increasing to £15,000. This can be in cash savings (bad long-term due to inflation) and most other popular investments such as individual shares or funds.

In my opinion, a low yielding Irish property would be a mad idea when you could invest £15,000 annually into a UK ISA from the sale proceeds and this would be completely sheltered from the tax-man (you don’t even need to include the share/fund purchases and sales in your UK tax return). You could probably expect a return from such an investment of about 7-8% - which suggests that a gross yield of below 10% from Irish property isn’t worth the hassle.

The exception, of course, is where the Irish property is mortgaged - and, in particular, if it's a tracker mortgage. If an Irish property is mortgaged and securing a gross yield of 8%, selling it will not result in the ability to invest the entire proceeds in a UK ISA – so further analysis of the figures would be required.

Of course, in either case, investing in an ISA offers more diversification if you also own a UK property.
 

ronaldo

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Thanks for the suggestions in the post below Brendan. Here's some further information:

I am purchasing a house in the UK, should this impact my calculations?

The first thing to consider is the rates available for your UK mortgage. With such a wide range of lenders, the rates available tend to drop by about 0.5% (more for higher LTV's) for every 5% deposit you have up until 60% LTV - where all the best rates become available.

Therefore, you have to consider whether selling the Irish property to increase the deposit available for your UK property makes sense. This means that, in addition to the usual calculations, you'll need to look at the UK mortgage market and your intended level of borrowing.

Whilst Brendan is correct that it is almost always worth keeping an investment property with a tracker mortgage, the following is one of the cases where it would be VERY worthwhile selling (I've converted pounds to euro for ease of comparison):

Irish Property Value|€200,000
Tracker Mortgage at 1%|€100,000

UK Property Value|€400,000

10% Deposit|€40,000
HSBC Lifetime Tracker|4.19%

35% Deposit|€140,000
HSBC Lifetime Tracker|1.99%


As you can see above, the tracker mortgage is on a great rate. However, if you only have a 10% deposit for your UK property, selling the Irish investment property will result in a mortgage of €260,000 at 1.99% as opposed to a mortgage of €360,000 at a rate of 4.19%. In other words, keeping the Irish investment property is costing you €9,910 in additional interest on your UK property.

Of course, if you have a larger deposit than 10% for your UK property anyway, the figures aren't as extreme (UK mortgages begin to get much better with a 20% deposit).


What about my family home - should I rent or sell it?

Well, there will be an emotional aspect to this that only you can quantify.

Regarding the finances, the first thing to do is to work out how much more it's worth now than when you bought it.

If you have a loss or small gain, then your decision can be made based on the figures already presented for properties that were already owned as an investment property.

If there's a significant gain, then renting it exposes it to potential capital gains tax.

In Ireland, the rules allow you to rent your PPR for up to a year after moving out before any CGT liability starts building up. Therefore, if you're undecided about whether you want to remain in the UK, you can rent it out for up to a year after moving out in the knowledge that no CGT will be due.

After the year, if you continue to rent the property, CGT will start to accrue pro-rata based on the total period of rental in relation to the total period of ownership.

The final 12 months is always calculated as a period of ownership. Therefore, if you own a property for 10 years and rent it for a further 18 months, your calculation would be as follows:


Period of Ownership|138 months
Period of Rental|18 months
Period of Rental liable to CGT|6 months

Liability to CGT|6/138 of total chargeable gain
Liability to CGT|4.35% of total chargeable gain


As you can see, renting a PPR with large gains doesn't have much of an impact on liability to CGT if the property was your PPR for a long time. However, if it was a PPR for a short period of time, the impact would be more apparent.

As most people with a PPR with large gains would have lived in that PPR for 10 years or more (properties purchased after 2004 are unlikely to currently have large gains) renting a PPR for a short number of years after moving to the UK shouldn't cost a significant amount - but it will cost. Here's another example:

Period of Ownership|180 months
Period of Rental|24 months
Period of Rental liable to CGT|12 months

Liability to CGT|12/180 of total chargeable gain
Liability to CGT|6.66% of total chargeable gain

Chargeable Gain|€100,000
CGT at 33%|€33,000
Liability at 6.66%|€2,200

The above example shows that renting a property that gained in value by €100,000 for 2 years after owning it for 13 years would cost €2,200 in CGT that wouldn't have been due if the property was just sold in the first place.

The example tells me that it is not worthwhile renting such a property in the hope of profits as the tax would eat into the profits, possibly eliminating them entirely. The only reason for renting a property with such a gain is if it took you 2-years to commit yourself entirely to the UK and emotionally let go of the family home. It will undoubtedly cost you money (unless the property rises in value whilst rented - which we cannot discuss here, nor can we quantify with any hope of success).

For properties purchased before 31st December 2004, there is also indexation relief to consider. Basically, this is an allowance for the affect of inflation and was abolished for more recently purchased properties. A table of multipliers for this relief can be found at http://www.revenue.ie/en/tax/cgt/leaflets/cgtmult.pdf. If this applies to you, feel free to comment on the thread with questions, if any.
 

Brendan Burgess

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Ronaldo

Thank you very much. That is a model Key Post.

Briliantly laid out. Anticipated most of my questions and alerted me to other considerations which I had not thought about.

A few questions/suggestions

Give more promience to the tracker issue. I would be worried that it might get lost towards the end of the page. If you have a tracker, it will almost always be right to keep the investment.

Not sure how to handle this one. There are two categories of readers. People who have investment properties who are moving to the UK. And People who are moving to the UK and renting out their family home. I think it would be worth putting the family home category into a separate follow up post.


  • Income tax requirements remain the same
  • CGT planning is complicated - First explain the rules; then maybe the strategy involved
  • The decision to sell an investment property is a purely financial one, many people want to retain their family home, so that they can return to it.
You made a very valid point in another thread about selling the investment property in Ireland as the cash released would mean a lower LTV if you are buying in the UK. A lower LTV can get you a significantly lower interest rate.
 

ronaldo

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Any other words of wisdom?

As stated in the original post, it can be more worthwhile keeping an Irish investment property that's mortgaged than it is to keep an unmortgaged one - because all of the sale proceeds aren't available for alternative investments.

However, you can also see that the income tax is more favourable for a non-resident investor than a resident investor. Therefore, there are opportunities available. This is primarily due to the low threshold at which higher rate income tax in Ireland kicks in.

Basically, in my own situation, I earn above the threshold that would result in me paying 41% tax, 4% PRSI and 7% USC if I were Irish resident. However, I earn below the threshold that would make me a 40% UK tax payer, i.e. £41,450.

Therefore, the purchase of an additional Irish investment property may be worthwhile for me because I'd have no PRSI and no USC to pay - I'd still be below the €10,036 USC threshold because both properties would be in Donegal where rents are EXTREMELY low.

My total liability would be 20% Income Tax where a lot of local investors would have liability of 52% (Tax, USC and PRSI).

As I said before, if I had the proceeds to purchase a property in my bank, it may not be worthwhile - because I may get better returns from an ISA.

However, the funds for the purchase I'm considering would come from release of equity from my UK property. A UK bank will not lend for investment in an ISA but some will lend for the purchase of a foreign property - and UK tracker mortgages can be secured as low as 1.99% (1.49% + Base Rate) against my UK property.

So I don't have the option of releasing UK equity for an ISA investment - but I do for an Irish property investment. Lending at 1.99% and paying tax at just 20% puts me in a very good position in relation to most Irish investors.

Obviously, my mortgage would need to be approved in relation to available equity in my UK property and based on my UK income, i.e. the banks could not secure the mortgage against a foreign property and could not use Irish rental income when calculating affordability. This could make such a plan more difficult to do in locations where Irish properties are more expensive.
 

Joe_90

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Hi very comprehensive.

Do they have a remittance basis for the taxation of foreign income for non domiciled people in the UK like we have in Ireland?
 

ronaldo

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Hi very comprehensive.

Do they have a remittance basis for the taxation of foreign income for non domiciled people in the UK like we have in Ireland?
Yes, the UK does have remittance basis for non-domiciled people but I didn't investigate it much further because I am UK resident, ordinarily resident and domiciled. Therefore, I'm not eligible to use remittance basis.

However, if you need any specific information on it, it's available at the following link:

http://www.hmrc.gov.uk/cnr/hmrc6.pdf
 

Joe_90

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My apologies an assumption on my part. In the interest of completeness you should include the remittance basis as there may be Irish domiciled people moving to the UK.
 

Brendan Burgess

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In the interest of completeness you should include the remittance basis as there may be Irish domiciled people moving to the UK.
I don't think it would be appropriate to edit the original post as it could become so complete, it would lose its readability.


Joe could you do a reply - setting out the meaning and implications of it e.g.

You can move to the UK but remain domiciled in Ireland.
You can move the the UK and switch your domicile to the UK

The advantage of being a non-dom

The advantage of being a dom.

Brendan
 

Joe_90

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As a general rule a country will seek to apply income tax to all the income of its residents.

This means that an Irish domiciled Person (a person who considers Ireland to be their home country)* who moved to the UK would be subject to taxation on all their income worldwide income. There is a provision which can be availed of by non domiciled individuals known as the remittance basis of taxation of foreign income.

This means that the foreign income of an individual will not be assessed to Income tax in the country of residence unless it is remitted to that Country. The implication being that the rent would be subject to Irish income tax at 20% but not UK income tax at 40%. (If anyone has a different view on this please let me know as I'm not that familiar with the UK tax laws).

*Domicile is a much broader topic but I tried to keep it simple for the purposes of this discussion. Hope not to offend anyone. http://www.revenue.ie/en/personal/circumstances/moving/tax-residence.html#sec2

Your domicile will have implications for Capital Gains Tax and Capital Acquisitions Tax so anyone considering changing their domicile should get professional advice on the tax implications in both jurisdictions prior to doing so.
 

ronaldo

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I suppose I should mention the reasoning behind me keeping my investment property.

They were five-fold:

  • it had already got a good tenant and was turning a profit;
  • it was on a good tracker rate
  • there was little-to-no equity in the property to make selling to increase my UK deposit a good idea
  • my UK property was bought using a 25% deposit - so I got a good rate already
  • my UK mortgage is on a low salary multiple so, by overpaying, I've got it down near 60% LTV already and am looking at remortgaging to the best available rates (or releasing equity to purchase another Irish investment property)
 

Brendan Burgess

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Joe

Thank you very much for that.

If I move from Ireland to UK and take up a permanent job, I will be tax resident in the UK.

Who decides my domicile? Do I elect to be domiciled in Ireland or is it a judgement based on my plans?

Is there any advantage in being domiciled in the UK?
 

Joe_90

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Brendan

Every individual acquires a domicile of origin at birth. A domicile of origin will remain with an individual until such time as a new domicile of choice is acquired. However, before the domicile of origin can be shed, there has to be clear evidence that the individual has a positive intention of permanent residence in another country and has abandoned the idea of ever returning to live in his/her country of birth.
In the case of rental income it may suit to keep your domicile as Ireland. The property will always be subject to Irish CGT and Irish CAT as Irish situated property so changing your domicile would not be of any benefit.

It's a bigger question in tax planning of mobile assets and were the tax regime in one jurisdiction treats income very differently to us.

If an Irish person moves to the UK for a number of years say 20 and returns to Ireland in retirement and dies prematurely there may be an argument over which country has taxing rights. Have they clearly demonstrated that they abandoned their domicile of origin but is this contradicted by their return to Ireland.

The person needs to demonstrate where their domicile is in a case where there is any potential ambiguity. Buying a burial plot is one thing often mentioned.
 

ronaldo

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Interesting how about a post contrasting purchasing an Irish v UK property?
I would do a separate post on this but I don't think it'd add much value. There are regional variations in both Ireland and the UK in terms of gross yield available. It also varies depending on whether the person is a higher or lower rate UK tax payer.

When comparing the opportunities available in the UK region I looked at to those available in Ireland, I've found that the yields available in Ireland are better.

I believe that the reason for this is that investors outside Ireland rarely look outside Dublin when investing in Ireland. Therefore, the regional property prices are lower to cater for the fact that the majority of investors will be paying a total of 52% in various taxes and borrowings, if any, will be at rates closer to 5%.

By getting a UK mortgage and being taxed as UK resident, I gain the upper-hand over a local investor. If I were to purchase a UK property, I wouldn't bring anything to the table that is already brought by anyone else with earnings that put them in the lower rate tax band.

With the UK lower rate tax band pretty high at £41,450, there are plenty of investors paying tax at this level with the means to purchase UK investment properties. In Ireland, fewer people who are lower-rate tax payers have the means to purchase investment properties due to the band being so low at €32,800.

Basically, I think it's a good idea to look at any investment from a standpoint of "do I bring anything to the table that other investors don't bring?". If the answer to this is yes, then the potential investment definitely warrants further investigation.
 

ronaldo

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Joe

Thank you very much for that.

If I move from Ireland to UK and take up a permanent job, I will be tax resident in the UK.

Who decides my domicile? Do I elect to be domiciled in Ireland or is it a judgement based on my plans?

Is there any advantage in being domiciled in the UK?
Domicile is a complex area. Have a look at the flowcharts on page 16-19 in this document: http://www.hmrc.gov.uk/cnr/hmrc6.pdf

Basically, in my opinion, I had no choice but to be UK-domiciled. The flowcharts suggest I could have elected to remain Irish-domiciled had my plans to live in the UK not been long-term plans.

However, because I purchased my PPR here, it would be difficult to suggest my presence in the UK was anything other than a long-term commitment.

Therefore, my domicile is a definitive "you are UK-domiciled".

As you can see from the flowcharts, they are very complex and following them through to the end can still result in an answer of "you are probably domiciled abroad" or "you are probably domiciled in the UK"
 

Joe_90

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Domicile is indeed complex, perhaps it's that I'm from Cork but if I had to move the UK and even if I bought a PPR there i would still be Irish domiciled - no question.
 

ronaldo

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Domicile is indeed complex, perhaps it's that I'm from Cork but if I had to move the UK and even if I bought a PPR there i would still be Irish domiciled - no question.
Yeah, I probably could have chanced it. After all, they don't even quantify what a "long-term commitment" is. I could have argued that I only planned to stay 4 years but bought the PPR as I didn't want to deal with landlords :)

The thing is, I think keeping your Irish domicile is only important where the country you move to doesn't have a Double Taxation agreement with Ireland or if you are a 40% tax payer in the UK.

As the UK has a double taxation treaty with Ireland and I am a lower rate tax payer, maintaining Irish-domicile wasn't so much of a concern to me.

Of course, I could become a higher rate tax payer in the future in the UK. Based upon my current situation, I don't envisage being a higher rate tax payer in the UK over the next 8 years at least. Therefore, by the time I ever become a higher rate tax payer here, the question of whether me being in the UK represents a long-term commitment will be well and truly answered :)
 

ronaldo

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The income tax due on Irish income is a flat 20% and you may be entitled to a proportion of your Personal Tax Credit as an Irish Citizen. The amount you are entitled to is worked out using the following formula:

Allowances / Tax Credits x Income within the charge to Irish tax / Total worldwide income
Looking at this again, I believe my previous understanding that you weren't entitled to any Personal Credit as a non-resident was incorrect.

Therefore, I've updated the original post with the above information.

As an example, the current Personal Credit is €1,650 so, if a non-resident Irish citizen has Irish income of €4,000 and UK income of €36,000, I believe they'll be entitled to a Personal Credit of:

€1,650 * 4000 / 40000 = €165.
 
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