New Irish domicile ‘wealth tax’ puts HNWIs in line of fire

Wednesday, March 03, 2010 | Posted by: Richard Jameson
Categories: Protecting your wealth | Tags: tax, HMRC, HNWIs, Richard Jameson, corporation tax, domicile, Gaines-Cooper, Ireland, high net worth individuals, residency, IR20, Irish domicile levy, 2010 Finance Bill

Ireland has been held up as a country with a progressive and attractive tax regime, so the proposal for a domicile levy has taken Irish high net worth individuals (HNWIs) aback. On the other side of the Irish Sea, the recent findings in the Messrs Davies and James and Mr Gaines-Cooper case regarding tax residence have left many internationally mobile individuals feeling that the taxman has them in their sights…

Ireland is associated with its business-friendly headline rate of corporation tax of just 12.5%, a huge saving on the UK’s 28% rate and this, taken together with other features of the country’s corporate tax regime, has led to big multinationals like Shire, WPP and UBM relocating to Ireland.

So the announcement in the 2010 Finance Bill of an Irish domicile levy will leave Irish domiciled individuals with a very different taste in their mouth.

Who will be liable to pay the new levy – and how much?
The planned Irish domicile/nationality levy would apply to wealthy Irish individuals, irrespective of their residence. (In broad terms, an individual’s domicile is typically the country they call home and where they feel they most closely belong).

The levy will affect those Irish individuals with Irish assets of €5 million or more, and whose worldwide income is greater than €1 million. The annual levy is €200,000.

Download Grant Thornton’s briefing for more information on the new Irish domicile levy and who it affects.

Who else has a ‘wealth tax’?
The introduction of the levy is a surprising move and one that authorities of other jurisdictions will watch with interest. Ireland isn’t the first jurisdiction to introduce a wealth tax/domicile levy, but the mechanics of this charge are different to other, similar, wealth taxes. France has a wealth tax for French residents on worldwide assets, or on French-situated assets for non-French residents. Spain, though, abolished its wealth tax.

Anti-avoidance rules introduced
Irish domiciled individuals will not be able to gear up their borrowing to reduce the valuation of their assets (a tactic commonly used to minimise French wealth tax, for example).

What may be of some consternation for those across the Irish Channel is the introduction of anti-avoidance rules that will ‘look through’ offshore companies holding Irish-situated property for this levy. Similar structures are commonly employed by UK-resident, non-UK domiciled individuals, for example for estate-planning purposes.

Problems determining individual residency status
This Irish proposal was announced shortly before the latest developments in the UK’s prominent tax-residence cases involving Messrs Davies and James and Mr Gaines-Cooper (as mentioned above). The findings have implications for determining an individual’s residence status – in particular, whether an individual has left the UK and is outside the UK tax net, and that there is growing scrutiny of an individual’s residence status.

As a number of jurisdictions face an uphill battle to balance their public finances against the weaker economic background, HNWIs will not be surprised if they find themselves in the headlights of the authorities when it comes to new tax-raising measures.

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