29A Temporary non-residents

Summary

This section counters the avoidance by an individual of capital gains tax by means of going offshore temporarily, or by becoming dual-resident. The section only seeks to impose a tax charge on an Irish domiciled individual who disposes of certain assets while outside the current capital gains tax charge. An individual could fall outside the capital gains tax charge—

• either by leaving the State to take up tax residence elsewhere, or
• by arranging his or her affairs so that, while continuing to be resident in the State, he or she is also resident in another jurisdiction and that jurisdiction has sole taxing rights under the relevant Double Taxation Agreement.

However, if the person is, for more than 5 years, not, under normal rules, within the charge to capital gains tax, then a tax charge cannot arise under this section.

The assets concerned are a holding in a company which, when the person ceases to be chargeable in the State, is 5% or more by value of the issued share capital of the company or has a value in excess of €500,000.

If a person disposes of all or part of such assets during a period of less than 5 years during which he or she is outside the charge to tax under normal rules, the person will be liable to capital gains tax on this disposal as if the person had disposed of those assets, or that part of those assets, before he or she ceased to be chargeable in the State.

Whereas the gain on the deemed disposal arises before the individual ceases to be taxable in the State, the gain is required to be included in the individual’s return and the tax in respect of it accounted for, in the year in which the individual again becomes taxable in the State. Credit will be given in respect of any foreign tax payable on the actual disposal of the assets where such tax is payable in a territory with which Ireland has a double taxation treaty.

Details

(1)(a),(b),(c) The definition of “intervening year”; “relevant assets”; “year of departure” and “year of return” are set out. These definitions have to be read in the context of the provisions of paragraphs (b) and (c).

Therefore, “year of departure in relation to an individual” means the last year of assessment for which the individual is both—

• resident in the State (see section 819), and
• liable to tax in the State on a disposal of relevant assets on each day of that year,

before the year for which the individual ceases to come within either or both of those criteria.

Under normal capital gains tax rules, an individual is liable to capital gains tax on gains accruing on the disposal of assets if the individual is resident or ordinarily resident in the State. However, this right to tax can be negated by the terms of a Double Taxation Agreement. What the definition of year of departure identifies is the last year for which the individual, is resident and the right to tax the individual on disposal throughout the year is not negated by the provisions of any relevant Double Taxation Agreement.

The definition of “year of return in respect of an individual” is described within subsection (2) and is essentially the first year of assessment for which the individual is both—

• resident in the State, and
• liable to tax in the State in respect of a disposal, on each day of that year of relevant assets,

immediately after a year of assessment for which the individual did not satisfy either or both of those criteria.

The definition of “intervening year in relation to an individual” is any year of assessment falling within the period commencing on the first day of the year immediately following the year of departure and ending on the last day of the year of assessment immediately preceding the year of return.

An individual’s “relevant assets” are shares in a company, or rights to acquire shares in a company being shares or rights which the individual beneficially owned on the last day of the year of the individual’s departure the market value of which on that day—

• is equal to, or greater than, 5% of the value of the issued share capital of the company, or
• exceeds €500,000.

(2) The charging provisions of the section apply to an individual who has relevant assets and—

• who was domiciled and resident in the State and could be taxed on a disposal of relevant assets, and
• who ceases for a period (the intervening years) of not more than 5 years to be taxable in the State on a disposal of relevant assets before again (for the year of return) becoming resident and taxable on a disposal of relevant assets.

(3) The charge arises by deeming the relevant assets or any part of them that were disposed of in the intervening years, to have been disposed of and reacquired at their market value on the last day of the year of departure.

(3A) Where the market value of the relevant assets on the day they were disposed of is greater or less than the market value of those assets on the last day of the year referred to in subsection (3), that greater or lesser market value will be substituted for the market value on the last day of that year.

(4) Credit for foreign tax (if any) paid in respect of the actual disposal of the relevant assets or any part of them is allowable against the capital gains tax liability on the deemed disposal if there is a Double Tax Agreement with the foreign jurisdiction concerned. The amount of credit is limited so that the amount of capital gains tax payable by the individual in respect of other disposals cannot be reduced.

(5) The capital gains tax liability on the deemed disposal is to be treated, for self-assessment purposes, as if it arose in the year of return.

Commencement

The provisions of section 29A apply to an individual who ceases for the year of assessment 2003 or a subsequent year of assessment to be both —

• resident (within the meaning of section 819), and
• taxable on a disposal of relevant assets on each day of that year.

The section, therefore, does not apply to an individual who emigrates before 1 January 2003.

The section also does not apply to an individual who, before 24 February 2003, has ceased to be taxable on a disposal of relevant assets on each day in 2003 even though the individual is resident for that year as could happen, for example, if the individual became dual resident before that date and taxing rights belonged solely to the foreign jurisdiction.

Relevant Date: Finance Act 2021