Is there a new policy to entice London non-doms to Ireland?
Read more about: Taxation
The Finance bill that was published yesterday got a lot of attention for getting rid of the JP McManus Cinderella Rule. But there’s another provision that, to this tax non-specialist, looks designed to get a few London-based non-domiciled residents to move to Ireland.
For clarity it should be explained that the issue of domicile and residence are different things: a person can be resident year round in Ireland but claim another country as domicile for tax purposes (based e.g. on citizenship or working arrangements). In the UK and Ireland, “non-doms” are only taxed on income brought into the country, which in effect means their spending in the country since that would be the only reason to bring in income given that it will be taxed. There’s been a fair bit of tabloid rage against the UK non-doms, mainly on account of a perceived effect on house prices, and the UK political parties have competed to sound like they are clamping down on the practice — but without really curtailing it, since the attractiveness of London as an international financial centre would plunge without the ability to attract people to work in City jobs via the tax concession. Thus there was already a logic for some non-doms to move to Ireland and claim non-dom status here while continuing to manage their careers or businesses from the UK.
Here’s the problem. Under the Irish tax system, any person resident in Ireland is liable for capital gains tax on any asset anywhere. The 1997 Tax Consolidation Act provides a non-dom exemption, but only for assets outside Ireland and the UK (see page 97). Thus the London hedge fund manager living in Ireland with capital gains on UK assets would have to pay capital gains tax on the full gain, not just the part he remits to Ireland.
Until the Finance Bill. Section 37 (see page 12) removes the references to the UK and thus makes clear that a non-dom in Ireland gets the non-dom tax exemption on any capital gain outside Ireland. Now, the question of capital gains may be moot in the near-term with the global financial crisis. But it looks like there is a long-term plan to convince a few very rich people that they can flee whatever The Sun and Gordon Brown might have in mind for them to the safety of Dublin. Who knows, perhaps JP has been in Geneva long enough to claim Switzerland as a domicile and move back to Ireland full-time!