Key financial considerations for US citizens moving to Ireland

If you are relocating from the US to Ireland, whether for work, retirement abroad, or a lifestyle change, it’s essential to understand the financial and tax implications. US citizens face unique challenges due to dual tax obligations and complex cross-border regulation. We outline the key considerations, from taxation and investment planning to pensions strategies, to help you make the right decisions, ideally in advance of becoming Irish tax resident.

How are US citizens taxed when they move to Ireland?

The US differs from most other jurisdictions, as a US citizen remains subject to US federal tax on their worldwide income and chargeable gains, irrespective of where they are resident for tax purposes. This also applies to someone who has not renounced their green card.

In Ireland, tax residence is determined by a statutory day count test, which we outline in the table below: 
 

In addition to residence and US citizenship, the concept of domicile is also a key consideration for these purposes. Domicile is broadly determined by reference to the country where a person lives with the intention of remaining there permanently.

Once someone becomes Irish tax resident, they will be subject to Irish tax on worldwide income and chargeable gains. There is an exception to this rule, for someone who is not Irish domiciled. However, where a US person moves to Ireland, they may not automatically acquire an Irish domicile. Where they retain their domicile in a state of the US (rather than acquiring an Irish domicile) they can avail of the remittance basis of taxation for Irish tax purposes. Generally, this means that they will only be subject to Irish tax on non-Irish source income and gains, when they bring such income and gains into Ireland.

It is critical to ensure that double taxation is eliminated where possible through the Double Tax Treaty (the Treaty) between Ireland and the US. It is also important to note that the Treaty does not apply to state taxes (if applicable), so a US person’s residual exposure to state taxes should also be considered if they are leaving the US to move to Ireland.

In practical terms, when a US person becomes tax resident in Ireland, they will be concurrently subject to both Irish and US tax on income and gains and will be obliged to file annual tax returns in both jurisdictions. Therefore, obtaining the appropriate level of US and Irish tax advice is critical.

What investment portfolio is most suitable for US citizens in Ireland?

An important matter for US citizens is to ensure that their portfolios are structured in such a way that they are efficient for both US and Irish tax purposes.

The impact of US Passive Foreign Investment Company (PFIC) rules can be far-reaching for US investors. Many retail fundbased investments which work very well for typical Irish investors can be treated as PFICs. This means they are typically tax inefficient for an investor who remains in the US tax net, and they also impose extremely onerous US reporting obligations. As a result, many US investors will look to build a portfolio which avoids these investments. Direct equities, US-domiciled exchange traded funds (ETFs) and sovereign bonds are all types of investments that typically work well for this cohort of investors.

It is also possible to structure an investment portfolio in Ireland to avail of the remittance basis of tax for an investor who is Irish tax resident but not Irish domiciled. However, if those funds need to be spent in Ireland in the future, this planning will typically not work. Furthermore, while this planning may reduce Irish tax liabilities, a US person will still be subject to US tax on income and gains. There are several factors to consider that will determine whether this approach will be effective in each individual case.

Can US citizens have a pension in Ireland, and how are they taxed?

For a US person who is coming to work in Ireland, it’s important to consider the tax implications around remuneration. Many individuals employed in Ireland will set up an Irish pension. If a US person is considering setting up an Irish pension, the starting point is to determine how that Irish pension would be categorised under US rules.

In broad terms, for Irish tax purposes, the holder of an Irish pension will get tax relief on contributions (subject to limits as defined by statute) and with growth in the underlying assets in the pension benefitting from gross roll up treatment and no tax incurred until the pension is accessed as income or “retired” by the pension holder.

It is important to understand the US tax treatment of the Irish pension scheme. For many schemes, there is annual US tax on the uplift in market value of the pension assets each year and contributions which are not taxed in Ireland may be taxed in the US.

Although this is an extremely complex area, the net point to note here is that an Irish pension can be inefficient for a US person working in Ireland. Many people who are moving to Ireland will have built up US retirement savings via a structure such as a 401k. For someone who has left the US and holds a 401k, they will need to decide whether to access the 401k during their lifetime or to leave it alone (subject to mandatory withdrawals at the relevant age) and leave the value pass under their estate. There may also be the possibility of rolling over into an Individual Retirement Account (IRA), subject to considering the tax implications.

Similar to Irish pensions, the interaction between Irish and US tax rules is also very complex in the context of a 401k or other US retirement structure. It is important to ensure that tax advice is obtained in both jurisdictions so that you can make fully informed decisions around your Irish and/or US retirement assets.

What estate planning should US citizens consider before moving to Ireland?

The principal Irish tax to consider in the context of estate planning is Capital Acquisitions Tax (CAT) which applies to both gifts and inheritances and is levied on the recipient of the gift or inheritance. The rate is 33% and applies above the relevant lifetime threshold. That lifetime threshold is determined by the relationship between the recipient of the inheritance or gift and the donor. A child can receive a total of €400,000 from their parents under current rules. There is a full exemption for gifts and inheritances between spouses, regardless of citizenship or domicile. 

CAT arises in any of the following:

• The donor is Irish tax resident or ordinarily resident (or was Irish tax resident or ordinarily resident at their death in the case of an inheritance).
• The recipient is Irish tax resident or ordinarily resident.
• The gift or inheritance is an Irish-situated asset.

It may be efficient to transfer non-Irish assets prior to moving to Ireland, if your beneficiaries are also non-Irish tax resident. This type of planning should be considered using professional tax advice and in advance of moving to Ireland. Where the donor is not Irish domiciled, they are only considered resident/ordinarily resident if they have resided in Ireland for five consecutive years, which presents an opportunity. Our specialist team can work with you and your tax advisers to achieve the best outcome for you and your family.

What banking issues do US citizens face when relocating to Ireland?

A practical and important issue for anyone moving to Ireland is to establish their banking relationship. As a member of the Bank of Ireland group, Davy can provide introductions to dedicated advisers within Bank of Ireland who can assist our clients with assessing their everyday banking and lending needs, should you require it.

How can we help?

At Davy, financial planning is a core component of our client offering. Through comprehensive financial planning, we can provide you with a strategic view of your financial situation, enabling you and your family to make well-informed decisions as part of your relocation and into the future.

For someone moving to Ireland from the US, this will involve working with your tax advisers to build a suitable investment portfolio which is tax efficient in both Ireland and the US. Given the complexity of working through two different jurisdictions, we will work with you and your tax advisers to ensure you have a bespoke financial plan, complete with measurable goals and actionable steps.

We have the benefit of providing a comprehensive approach to managing your wealth, through our established investment platform, advisor network and client led approach, which is complemented by our ability to provide introductions to Bank of Ireland who may be able to provide your day-to-day banking and lending requirements

If you are relocating from the US or if you are US citizen already in Ireland, why not book a consultation. If you are a Davy client, please contact your adviser.