Q & A

I recently returned to Ireland from the UK where I have a PEP, which will mature in three years time and, in addition, I have a small number of shares. Can you please advise me of any tax liabilities I may incur: (a) when the PEP matures and I choose to take part or all of the funds into Ireland; (b) in relation to dividends from the shares and; (c) as a result of selling the shares.

Mr B.D., email

As you rightly say in your letter, proceeds from Personal Equity Plans (PEPs) are exempt from tax in Britain; in the Republic, although they do receive favourable tax treatment, the PEP holder is still liable to a 10 per cent tax charge on the profits accruing. Unfortunately for you, it appears you will lose out at both ends when this particular investment matures.

According to the Revenue Commissioners and a number of accountants to whom I spoke, the British PEP has no standing under Irish tax legislation even though a similar product exists in this jurisdiction. The long and the short of it is that it will be treated as investment income from abroad for the purposes of tax in the Republic and the interest accruing on the PEP upon maturity will be taxed as income given that you are resident in the Republic. I am told that this is the case whether you repatriate any or all of the funds or not. The case is apparently covered by Case III of Schedule D of the income tax code relating to interest not taxed at source and all foreign income.

The argument apparently is that the British PEP is a specific arrangement set up under British tax incentives; there is no obligation for these to be respected across national boundaries, it seems.

The central issue is residence and/or domicile. This is a complicated area, but essentially you are taxed on worldwide income in the Republic if resident here. If, however, you were resident but not domiciled, income not brought into the State from abroad would not be liable to tax. To determine your precise status, if in any doubt, you would be well advised to take proper professional advice.

On the subject of dividends and the sale of shares, the same principle applies. Irish capital gains tax will be levied on the gain derived from the sale of any shares, wherever that occurs. As for dividends, under Irish law, you are liable to income tax at your upper rate on gross dividend income. However, the dividend you receive on your British-based shares will be net of tax deducted by the British authorities. You will be able to reclaim a portion of this from the British authorities - using an IRL/Individual Credit form available from the Inspector of Taxes Claims Section office at 14/15 O'Connell Street, Dublin 1 or by application directly to the British Inland Revenue - and offset the balance against any Irish income tax liability.

In a recent Q&A column, you said that the first £500 of any gift or inheritance was tax free. I believe this provision applies only to gifts and not to inheritances. Is that not so?

Ms S.C., Dublin

You are perfectly correct Ms S.C. The information I received was incorrect. While the first £500 of any gift from any donor in any given year is not considered in determining the capital acquisitions tax liability, the full amount of any inheritance is taken into consideration.

I receive a monthly US Social Security retirement pension and also a widower's pension from the Irish social welfare services. In addition, I have a savings account in a Dublin bank and I pay DIRT on the interest which it yields. Can I reclaim the DIRT paid and should the US pension be taxed in Ireland. I am resident in Ireland, hold dual Irish and US citizenship and am 75 years of age.

Mr P.B., Dublin

Looking first to the issue of your US Social Security pension, the present situation is that this is now taxed only in the country of residence of the pensioner, in this case, in the Republic. This is laid down in the new convention on double taxation between the Republic and the United States, which came into force for pensions on April 6th of this year.

In relation to the repayment of Deposit Interest Retention Tax (DIRT) to old age pensioners, the situation depends both on the age of the claimant and the income he/she receives. Up to the age of 74, a single pensioner is allowed reclaim DIRT if his/her income is £5,000 in the case of a single person or £10,000 for a married couple. At the age of 75, the income threshold rises slightly - £5,500 for a single person and £11,000 for a married couple.

In cases where the pensioner's income only marginally exceeds the thresholds, it is possible that they would be entitled to a partial refund of DIRT.

Send your queries to Q&A, Business This Week, 10-15 D'Olier St, Dublin 2, or email to dcoyle@irish-times.ie.