QUESTION
I am an Italian citizen, resident in Ireland since 2014, paying PAYE. I am in the process of buying a house. I am paying cash for it and have four different streams of money to pay for it, most of which have been brought into Ireland from Italy via wire transfer. I wish to know if I will be taxed on this?
They include:
(1) a €50,000 donation from my father in Italy;
(2) €120,000 in personal savings in Italian bank; money derived from income earned from before I moved to Ireland;
(3) a €120,000 loan from an Italian bank;
(4) €40,000 in savings in Irish bank account from money earned from working in Ireland.
I read about Capital Gain Tax and Capital Acquisitions Tax. I think none of the two applies because of double-taxation rules between Ireland and Italy but I would like to know your opinion. Also, how will the loan be treated? Am I supposed to pay taxes on that?
Is the Revenue going to come knocking on my door soon to verify the nature of the funds under anti-laundering rules?
I also have an extra income from my property in Italy, which is rented out. I suppose this needs to be declared and taxed in Ireland, or still in Italy as it is currently due to double taxation agreement?
Mr AB, email
ADVICE
Okay, you have two unrelated issues here: the position with the funds you are using to buy a property in Ireland and, separately, the tax position on your rental income in Italy.
The position on the new property in Ireland is fairly clear. There is no tax implication for capital gains tax or capital acquisitions tax on your Italian savings, the Italian bank loan and your Irish savings.
The savings are money on which you will have already paid tax if due, and the loan has no bearing on your Irish tax position.
The situation is different on the money you are receiving from your father, although the good news is, on its own, it does not mean you will actually have to pay tax at this time.
In Ireland parent are allowed to gift money to their children, but there are limits. At the moment, the limit is €310,000. This means you can receive from your parents up to €310,000 in gifts and inheritance before you pay capital acquisitions tax. This is not for each parent but for both together.
Clearly, €50,000 will not trigger tax in itself apart form €3,000 that you can receive from your father under a small gift exemption, the rest will count towards your limit – and this is a lifetime limit. So if you also received money from your father (or mother) previously, you must add these all together to make sure you are still below the limit.
So you should be able to purchase your home here with the money from the various sources you outline without incurring a tax bill. However, as you own a home in Italy, you will not be able to apply for financial relief under the help-to-buy scheme as this applies only to first-time buyers.
Now to the second point: the rental income you receive in Italy. This brings up the complicated line between tax residence and domicile. The first is easy. You are here working, so you are resident here for tax. But are you domiciled here?
In general, a person will be domiciled in the country where they were born and have family roots. In your case, that is Italy. You can change domicile but it is not like tax residence, where it just changes because you happen to work in another country. If you still consider Italy your home, then it would be reasonable to assume that is your domicile, especially as you have savings and assets, including a home, there.
You could choose to change your domicile to Ireland if you planned to live here for the rest of your life, but it is not something you would do suddenly.
The reason it is important in this case is that, if your domicile is in Italy, the rental income sitting in an Italian bank is not a problem. It only becomes an issue for the Irish tax people if you bring it here.
If you were to decide you were Irish-domiciled, you would suddenly be liable to tax on that rental income in Ireland. It would probably already be taxed in Italy so you would have to claim relief under the double-taxation arrangements.
For now, as your bank savings coming here were earned before you initially moved to Ireland, you should have no tax bill, and no fear of the Revenue knocking on your door.
- Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
