The Gazette 1986

sepTemBER

1986

GAZETTE

Domicile and Foreign Divorces Act, 1986

by Brian Bohan, Solicitor

Income Tax and Capital Gains Tax The concept of domicile in relation to Income Tax and Capital Gains Tax relates to the treatment of foreign- source income of an individual who is resident in the State but domiciled outside the State. U.K. Income is excluded from the remittance basis of taxation by Schedule 6, Part III, Paragraph (i) Income Tax Act, 1967, which requires all Income from sources in the U.K., to be taxed under the Rules of Schedule D, Case III (as if section 76(2) Income Tax Act, 1967, did not exist). If a taxpayer was utilising the remittance basis by reason of domicile of dependency, this could cease to have effect from on and after the 2nd day of October, 1986. Mrs. X, bom in Ireland of an Irish father, is married to Mr. X who has English domicile but is resident in Ireland. She is entitled to an Income from a trust fund in New York but is taxed only on a remittance basis. By not remitting any of the Income, she suffers no Tax. This relief will cease to have effect from the 2nd October, 1986. Capital Acquisitions Tax The concept of domicile is of much greater importance in the realm of Gift Tax and Inheritance Tax. Sections 6 and 12 cover the territoriality aspects of Gift Tax and Inheritance Tax, respectively. Where a disponer is domicled in Ireland at the date of the disposition under which a gift is taken, the whole of the gift (global property) is subject to Gift Tax. An exception is made in the case of a discretionary trust where the domicle is determined for this purpose at the date of the gift or appointment out of the discretionary trust (or at the date of death, if the appointment is made after that date). Mrs. X, bom in Ireland of an Irish father, is married to Mr. X, who is domiciled in England but resident in Ireland. She is entitled to an estate in New York. She settles this estate prior to the 2nd day of October, 1986 (a) on trust for herself for life with remainder to her children, or (b) on discretionary trusts. ( a ) In this instance, Mrs. X will be foreign domiciled

This Act became Law on 2nd October, 1986. The October, 1986, issue of the Gazette contained a note alerting practitioners to some of the consequences of the Act. In this article, Brian Bohan, Solicitor, raises more detailed issues, particularly with regard to taxation. G enerally under Irish law, neither married women nor minors (persons under 18) nor persons of unsound mind can acquire a domicile of choice. Each of them has what is known as a "domicile of dependence". Unheralded and without much publicity, dramatic changes were made in the domicile of dependants under the Domicle and Recognition of Foreign Divorces Act, 1986, which became law on the 2nd day of October, 1986. Prior to that date the domicile of a husband is conferred on a wife immediately upon marriage and, while that marriage subsists, she is unable to acquire a domicile separate and independent of her husband. This applies even if the spouses are living apart and, indeed, if either of the spouses left the country permanently and acquired a domicile in a foreign country according to the rules of that country. So, if a husband deserted the wife and went to live permanently in the U.K., acquiring an English domicile, his wife still residing in Ireland would also have English domicile. If the husband then acquired a valid divorce in the U.K., it would most likely be recognised in the Republic of Ireland as it would have been granted in the country where both spouses were domiciled (the wife having English domicile of dependency). It is not the same if the wife deserts the husband and moves to the U.K. Under Irish Law, she will retain her husband's domicile by dependence and any divorce granted abroad would not be recognised. From on and after the 2nd day of October, 1986, a married woman is capable of having a domicile independent of her husband and that domicile will be determined under the general law. Domicile of dependency for a married woman is abolished. The dramatic effect is that a married woman could have a particular domicile on the 1st day of October, 1986, and under this Act could have a separate and new domicile on the 2nd day of October, 1986. H married to W; H deserted many years ago and went to live in London. He has acquired an English domicile. On the 1st day of October, 1986, W has English domicile (by dependence). On the 2nd day of October, 1986, W has Irish domicile under general rules (birth, permanent home, etc.,). H married to W; many years ago W deserted and went to live in London. She acquired English domicile according to U.K. Law. On the 1st day of October, 1986, W has Irish domicle (by dependence). On the 2nd day of October, 1986, W has English domicile (by choice). There are Tax consequences.

at the date of the disposition (i.e., the date of the settlement) and, provided none of the trust fund is situate in Ireland, her settlement should escape Gift Tax and Inheritance Tax (except on a premature break-up). Remittances of Income to Mrs. X prior to the 2nd day of October, 1986, will not be subject to Income tax, whereas all income arising in the trust fund on and after the 2nd day of October, 1986, will be subject to Irish Income Tax. Of course, the proper law of the settlement must be New York. 269