Financial Planning Considerations for U.S. Expats in Ireland
Many visitors to Ireland fall in love with its lush green countryside, outdoor lifestyle, cultural history, food, people and pubs. If your love of the country has you dreaming about moving there, you’re not alone. More than 35,000 American expats currently call Ireland home.1 If you’re planning on joining them as a permanent resident, it’s important to be aware of the following financial planning considerations.
#1 – Personal income tax rates are higher in Ireland than in the United States.
While Ireland’s corporate tax rates are incredibly low, personal income tax rates are much higher than in the United States. This means if you’re planning on working while living in Ireland, it’s important to budget for higher tax rates as you make plans to pay for your daily living expenses.
#2 – You can lower your global tax rate by remaining a non-domicile.
Residents of Ireland that were born in Ireland to Irish-domiciled parents are subject to Irish income tax on their worldwide income, regardless of where it was earned. In contrast, non-domiciled residents are taxed only on income earned within, or remitted to, the country. For U.S. expats, it often makes sense to assert and retain non-domicile status indefinitely, as doing so allows you to pay income tax only on Irish earnings and earnings remitted to Ireland.
#3 – Ireland has an inheritance tax, not an estate tax.
Ireland’s inheritance tax, known as the Capital Acquisitions Tax (CAT), impacts everyone who has been a resident in the country for a certain number of years. There are significant differences on the applicability of CAT when a person isn’t domiciled in Ireland. CAT applies to individuals as well as Ireland-situated assets. For example, CAT may apply to shares of Ireland-based stock even for inheriting heirs who have never set foot in Ireland.
Fortunately for U.S. citizens living in Ireland, the U.S.-Ireland tax treaty may override Irish inheritance rules in certain situations. For example, if you live in Ireland, any non-Irish assets you inherit from a U.S. estate may be exempt from Irish CAT.
In addition, as long as you remain domiciled in the United States, any assets situated outside of Ireland can be passed to your heirs without being subject to CAT.
#4 – Ireland’s pension is covered by the U.S.-Ireland tax treaty.
Fortunately for Americans living and working in Ireland, the Irish Personal Retirement Savings Account (PRSA), which is offered by many Irish employers, is covered by the U.S.-Ireland tax treaty. That means U.S. taxpayers can participate in the pension without worrying about tax implications.
However, it’s important to carefully retain the account’s tax-exempt status. Approved retirement funds (ARFs), which are essentially personal accounts to hold investment savings, fall outside the U.S.-Ireland tax treaty. This means if you convert your PRSA to an ARF, you may end up paying taxes.
Also, while Ireland allows pension-to-pension rollovers from the PRSA to certain other countries’ pensions, completing such a rollover may jeopardize U.S.-Ireland tax treaty protections. Before completing a pension rollover, be sure to consult with an experienced international wealth manager.
#5 – The U.S.-Ireland tax treaty offers other tax protections.
The U.S.-Ireland tax treaty protects Americans from double taxation on their income, estate taxes and government pensions. For example, if you’re a short-term resident of Ireland, you may be eligible to make pre-Irish tax contributions to your existing U.S.-based IRA for the first five years of your residence.
In addition, your contributions to the Irish state pension system may be taken into consideration for U.S. Social Security for the purposes of “totalizing” your contributions to both systems. This can help you obtain and maximize your benefits from one system.
#6 – Ireland isn’t friendly to trusts.
It’s important to note that Ireland doesn’t offer favorable tax treatment to trusts, including U.S.-based trusts. If your estate planning strategy includes a trust, you may need to make some adjustments. For U.S. expats living in Ireland, it’s often more beneficial to undergo a probate process rather than attempt to navigate the complexities and tax disadvantages of passing down assets held within a trust.
Your international wealth manager and estate planning attorney can help you establish an estate planning strategy that makes sense for you as an American living in Ireland.
