UK AND REPUBLIC OF IRELAND CONVENTION (1978)

​

Key Points

• State of domicile has primary tax jurisdiction over transfers except in relation to real and business property which are subject to primary tax jurisdiction in the situs. However, in the case of property comprised in a settlement, the allocation of taxing rights depends in part on the proper law of the settlement and in part on the settlor’s domicile.

• Where both States claim domicile, a set of tie-breaker rules is set in Article 4 of the Convention to determine fiscal domicile.

• Each State is required to grant a credit against any tax it imposed on property situated in the other State which is also subject to tax in that other State.

• Where both States tax property situated in a third country, the country with subsidiary taxing rights is required to grant a credit in respect of the tax paid by the other State

​

Example 1

Colleen was an Irish citizen and domiciliary who had been living in the UK for 15 years at the time of her death in 2022.  She owned homes both in the UK and Ireland and maintained economic and personal links to both countries.  She used her house in Ireland for vacation purposes only.   Her estate comprised the following assets.

• House in the UK valued at £1,000,000

• House in Ireland valued at €500,000

• Apartment in Luxembourg valued at €200,000

Colleen left her entire estate to her secretary, Gwendolene.

 

Both the UK and Ireland claimed to be entitled to tax the entire estate.

 

Fiscal Domicile: Even though Colleen had permanent homes in both the UK and Ireland and enjoyed close personal and economic links with both countries, her habitual abode was in the UK (as she used her home in Ireland for vacation purposes only).  So, under the rules as set out at Article 4 of the Convention, Colleen is deemed to have her fiscal domicile in the UK.  The UK therefore is entitled to exercise primary taxing rights.

​

Value of Assets in the Estate:

UK Assets: £1,000,000

Irish Assets: €500,000

Luxembourg Assets: €200,000

Entire Assets: £/€1,700,000

 

Tax Rates and Exemptions for Year 2022:

UK Exemption Amount                                  £325,000

UK Estate Tax Rate                                          40%

Basis of taxation in UK                                   Worldwide property of domiciliaries

                                                                                   Situs assets of non-domiciliaries

Irish Exemption Amount                               €16,604 (Threshold C unrelated beneficiaries)

Irish Estate Tax Rate                                      33%

Basis of taxation in Ireland                          Worldwide property of domiciliaries

                                                                                   Situs assets of non-domiciliaries

Luxembourg                                                        Inheritance tax does not apply

Assume  £1 = €1

Assume the estate is not subject to any debts or liabilities.

​

Calculation of UK Tax Liability

                                                                                                                 £

House in the UK                                                                       1,000,000                          

House in Ireland                                                                          500,000

Apartment in Luxembourg                                                    200,000

                                                                                                          1,700,000

Exemption Amount                                                                    325,000

                                                                                                               1,375,000                            

Tax @ 40%                                                     550,000         

Less: Credit for Irish Tax Liability         159,521         

Tax Liability                                                                                        390,479

Net Estate                                                                                            984,521

 

Tax Liability: £390,479

​

Calculation of Gwendolene’s Tax Liability

                                                                                                                        €

House in Ireland                                                                              500,000

Exemption amount                                                                           16,604

Gross Taxable Estate                                                                    483,396

Tax @ 33%                                                                                            159,521

Net Estate                                                                                          323,875

​

​

No tax liability arises in Luxembourg.

​