CGT UK/Ireland

uih039

A friend of mine is considering buying into a long-term investment in the Republic of Ireland.

It is a forestry-based investment, encouraged by the Irish Government. The money has to be left for a number of years but the big plus is that any eventual profit is tax free by government decree to encourage forestry. My friend is Irish, but a UK taxpayer. Would he be liable for UK Capital Gains Tax on the profits? I would have thought that the fact that as tax has been "paid" (albeit at 0%) in another EU country (Rep of Ireland) means that UK CGT does not apply as it is covered by dual tax relief.

Is this correct?

Thanks.

Andrew.

chrismac1

it sounds to me like your mate is either UK resident or UK ordinarily resident for UK tax purposes. If he is he will pay UK tax on his worldwide gains. This will be either 18% or 28% of the gain, after his annual 10,100 exemption, in the year of the disposal. However:

1. If it is commercial forestry, there are some useful tax-breaks from CGT and income tax on any income arising. For CGT I think he'd only be taxed on any increase in the land value and not the trees. if it's non-commercial forestry he's liable on the lot.

2. Your friend is entitled to claim non-domicile status, as he is of Irish domicile. This means he's only taxed on money remitted to the UK, income or capital. BUT there is a big negative to going non-dom, your tax bill immediately goes to £30,000 as soon as you tick that box. So it's only worth it if the gain plus income in the tax year is over £80k or so. Non-dom is an election your friend can make each and every tax year, if you elect non-dom one year it does not force you to do the same thing next year.

chrismac1

I should add that the way the double taxation treaties work is that the taxpayer's overall tax bill ends up being the higher of the 2 possible tax bills. So in this case his UK tax bill will be the one he'd end up with, if his Irish tax bill is going to be zero.

Cook_County

Exchange rates will also alter the answer - it is possible to make a loss in Euros but a gain in Sterling or the reverse...

tyllwyd

I am not an accountant in any shape or form, but a while back I worked on a book on capital taxation in Ireland. Most of it went in one ear and out the other, but what I did learn is that you can't assume that capital gains tax in Ireland follows the same rules as in the UK, and it is fiendishly complicated. So your friend should get advice from someone who is familiar with Irish tax law before they sign anything.