Questions & Answers

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 D'Olier Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.

Tax status

Could you please explain the difference between "residence" and "domicile"?

Mr J.T., Belgium

At the outset, let me say that residence and, more particularly, domicile are complex legal terms and, for a comprehensive definition, there is no real alternative but to consult a lawyer specialising in the area of tax law.

Having said that, there are certain general principles which apply. The first thing to note is that residence for tax purposes is something which can change frequently; domicile, on the other hand, is very difficult to alter.

In lay terms, domicile is that country which one considers to be home. Most usually that will be the country in which you were born - or the country of your father, if your family was in transition at that time. For instance if you were born in Ireland - or in Belgium while your Irish family was working on attachment, say, to the European Union - your domicile would be Ireland. If, however, your family had emigrated permanently to Belgium, or anywhere else, it is possible that that country would be your domicile. You can change domicile but it is a complicated legal process and, in effect, means adopting a new nationality. It could happen, for instance, in cases where people moved permanently to a new state, such as emigrants or refugees.

Residence, on the other hand is a more transitory situation. In Irish tax law, a person will be regarded as being resident in Ireland if they spend more than 183 days during a tax year in Ireland or if they spend 280 or more days in the State over two years. Having said that, any continuous period of less than 30 days in Ireland during that/those years will be ignored in any calculation.

You can chose to be resident in Ireland from your arrival even if you would not fall under the residency conditions outlined above. This would happen where you can satisfy the tax authorities that you will be resident for the next tax year. Obviously, this election would only happen if you were moving from a more punitive tax regime.

If you are tax resident in Ireland for three years in succession, you will be deemed to be "ordinarily resident" here thereafter. The importance of this is that you will continue to be deemed "ordinarily resident" for three years after your departure from the State - unless, presumably, you elect to be resident in some other jurisdiction.

In tax terms, the status is important. If you are resident and domiciled in Ireland, for instance, you pay income tax here on any income you earn, no matter from where and no matter whether that income is brought into the State or kept offshore.

If you are resident but not domiciled in Ireland or ordinarily resident in Ireland, you will pay Irish income tax on any income earned in Ireland and Britain. You will also pay Irish income tax on any other income if you repatriate it to Ireland.

If you are ordinarily resident in Ireland but not actually resident in the State in the given tax year, you are liable to Irish income tax on your worldwide income. However, there are exceptions. First, any income from employment is exempt, if that employment takes place abroad. Similarly, income for other sources - for instance, rent earned abroad - is not taxable here.

If you are not resident or ordinarily resident here, you will be taxed only on income earned here - such as rent or investment income.

In addition, Ireland has double taxation agreements with many countries, including almost all those in Europe and most English-speaking states, to ensure that one doesn't pay tax in two jurisdictions on the same income. Which jurisdiction gets preference will depend on the wording of the particular agreement.

Bacon report

This must be your millionth enquiry on the latest Bacon report & implications but here goes. I am married with joint ownership of a house (principal residence) in Dublin. I am from the west of Ireland and my father is in possession of my grandmother's cottage (unoccupied, but in use as an outhouse). I had expressed an interest a number of years ago in doing it up as a second home.

My father has now suggested that we finalise details and get it "signed over" to me on a gift basis. I am not in a position financially to renovate it at this point in time but would hope to do it within three or four years - planning permission etc permitting.

For sentimental reasons I would really like to take this house on and restore it properly, but at the same time I do not want to take on a big financial burden at this time.

In addition, I feel daunted by the whole complex palaver that seems to surround the property/planning area. I have been on to the Department of the Environment about the Bacon III report, but the website address they gave me was incorrect and I'm not happy to pay £20 for the published report, when I feel this information should be readily available to the public. (Also it is not in my local library. The Department directed me to the National Library, which I may have some chance of getting to, but would be of little use to someone down the country.)

In order to identify planning rules & guidelines for a restoration of a cottage like this (or even to find out if it would be acceptable at all), someone went in on my behalf to the local county council office. They were told "it all depends" and "submit your planning application and we'll see" (with the hefty fee attached). It's like trying to play football without knowing where the goalposts are.

Anyway, I am interested in finding out:

a) what the implications are for me as a result of the new legislation on the ownership of second homes?;

b) where can I can get information on the rules/regulations/guidelines which pertain in this kind of situation?

Ms M.W., e-mail

You're right about the weight of queries from readers on the Bacon report but that just goes to show how many people are confused by the new rules and how many may be affected by them.

First things first. A copy of the third Bacon report is available on The Irish Times's website at ireland.com. The URL is http://www.ireland.com/newspaper.special/2000/bacon-/baconreport.pdf/. I assume you will be able to access this as your query arrived to me by e-mail. I agree, the report should be available on the Department's own website but I cannot find it there. Equally, it should be available for those without computer access. I don't know about county libraries, although I would imagine copies should be available there. However, I would be surprised if it was not available at council offices around the State.

In any case, what you need is a list of those provisions in the report that have been passed into law and have taken effect. Those are contained in the second Finance Act 2000.

Turning to your situation, it appears you will be exempt under the new rules. Section 10 of the Finance Act (no2) 2000 exempts gifts from people who, if they had held on to the property, would not have fallen under the new regulations - a situation that seems to cover your situation.

Turning briefly to the planning situation, it is true that there is never any guarantee about a specific application as there are many different factors that come into play, including precisely what you want to do with the property. If you are simply talking about restoring it, I imagine there would be few objections, although there might be quite stringent building regulations to ensure it was properly done. If, on the other hand, you were looking at dramatically extending and altering the original property, things might be more difficult.

In any case, each county is supposed to have a county plan open to the public, which should outline its broad planning policy and give you some indication of your chances. Equally, a quiet word with some local architect or surveyor - or indeed a councillor who, after all, represents the public - would give you a good idea of the lie of the land without incurring great cost.

Do remember that you would be liable for capital gains tax if you were subsequently to sell on your grandmother's house.