A Guide to Non-Domicile Tax in Ireland for RSU Holders, Pensions, and Inheritance Tax Planning

Non-domicile tax in Ireland can be complex, especially when it comes to specific assets such as RSUs (Restricted Stock Units), pensions, and inheritance tax planning. Here's a guide to help you understand the tax implications and planning strategies for these assets in Ireland.

RSUs:

RSUs are a type of stock-based compensation often granted to employees as part of their compensation package. In Ireland, RSUs are generally considered taxable as employment income when they vest or are released to the employee. As a non-domiciled individual in Ireland, you may be subject to Irish tax on the value of RSUs that are attributable to work performed in Ireland, even if a foreign employer grants the RSUs.

It's important to carefully review the terms of your RSU plan, as well as your employment contract and any applicable tax treaties, to determine the tax treatment of RSUs in Ireland. Proper tax planning, such as timing the vesting of RSUs to minimize tax liability, may be necessary.

Pensions:

Pensions are a common form of retirement savings, and their tax treatment in Ireland depends on various factors, including residency status, type of pension scheme, and source of contributions. As a non-domiciled individual in Ireland, you may have different tax implications for your pensions compared to domiciled individuals.

For example, if you are a non-domiciled individual in Ireland, you may be eligible for relief from Irish tax on foreign pension income, provided certain conditions are met. However, if you become domiciled in Ireland, your foreign pension income may become subject to Irish tax. It's crucial to understand the tax implications of your pension scheme and seek professional advice to ensure compliance with Irish tax laws and optimize your tax position.

What is the Maximum Pension Tax Relief in Ireland?

The amount of tax back you can receive on pension contributions increases as you get older, and all pension tax relief is subject to an earnings maximum, which is currently set at €115,000. This means that regardless of age, only contributions deducted from the first €115,000 of your annual salary are eligible for tax relief.

Pension tax relief examples

Example 1:

If your gross monthly income is €5,000, taxed at a rate of 40%, you receive €3,000 pay that month. However, if you contribute 2% to your pension, that €100 contribution is taken from your gross income before it is taxed, and the full €100 is added to your pension amount—meaning you don’t pay €40 of it (40%) as tax.

€40 each month may not seem like a lot, but over time, it can add to significant savings, particularly when planning for retirement.

Example 2:

Another often overlooked advantage is that both PAYE workers and the self-employed can make pension lump sum contributions up to the 31st of October in the year following the contribution year. Is it worth putting a lump sum into a pension in Ireland? Yes, and here’s why: 

A taxpayer can make a lump sum pension contribution up to October of a particular year and backdate the benefit to the previous year. If a taxpayer made a pension contribution of €10,000 to their pension in October, the taxpayer can then immediately get a tax rebate of €4,000 from the previous year, assuming they paid tax at a marginal (higher) rate of tax of 40%.

This is a very useful tool if you obtain a lump sum on retirement from employment or redundancy from employment

How Many Years Can I Claim Back Pension Tax Relief?

You can potentially claim tax relief on pension contributions made in the current tax year (2024) and the six preceding years (2019-2023). However, tax regulations can change, so it's always best to consult with a tax expert, to confirm the specific rules and eligibility requirements for backdated pension tax relief.

Inheritance Tax Planning:

Inheritance tax, also known as Capital Acquisitions Tax (CAT), is a tax levied on the transfer of assets or property from one person to another, typically upon death or by way of gift. Proper inheritance tax planning can help minimize the tax liability for non-domiciled individuals in Ireland.

Some common inheritance tax planning strategies include making use of the tax-free thresholds for Group B and Group C beneficiaries, gifting during the lifetime to reduce the taxable value of the estate, utilizing exemptions and reliefs such as agricultural property relief or business relief, and setting up trusts to transfer assets and reduce inheritance tax liability.

It's essential to consider the unique circumstances of your estate and seek professional advice from a qualified tax advisor or estate planner to ensure compliance with Irish tax laws and minimize the risk of tax issues in the future.

In conclusion, non-domicile tax in Ireland can be complex, and it's crucial to understand the specific tax implications and planning strategies for different assets, such as RSUs, pensions, and inheritance tax planning. Seeking professional advice from qualified tax advisors is highly recommended to ensure compliance with Irish tax laws and optimize your tax position.

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