Can a non-resident take invest in a PRSA?

[murphaph1]

If your wife has no employment in Ireland how would she be entitled to take out a PRSA? I thought that a PRSA is intended to encourage people to provide for their retirement. Revenue have to issue a certificate to approve a PRSA. If no employment, no PRSA, no? If she can open an ordinary investment account, would some of the gain be offset by her Personal Allowance, if she registered for tax in Ireland?

That's the sort of thing I'm trying to figure out here to be honest.

 

[bstop]

Pensions Manual Chapter 24...

24.1 Introduction
A Personal Retirement Savings Account (PRSA) is a long-term savings account designed to assist people to save for their retirement. PRSA products are approved jointly by Revenue and the Pensions Authority. Anyone may contribute to a PRSA but there is not an automatic entitlement to tax relief.

24.2 Tax relief
An individual who is not in pensionable employment is entitled to relief on contributions up to €1,525 even if the contribution exceeds the relevant age-related percentage limit (section 787E(4) TCA). This does not apply in the case of contributions to a PRSA for AVC purposes


24.10 Non-residents and vested PRSAs
PAYE Exclusion Orders
Income and assets retained in a vested PRSA are beneficially owned by the PRSA owner. Withdrawals (including deemed withdrawals) from vested PRSAs are treated and taxed as emoluments under Schedule E regardless of the residence status of the individual. As with payments from an ARF or previously from an AMRF (see Chapter 23), withdrawals from vested PRSAs are not payments of pension and Revenue does not issue PAYE exclusion orders to PRSA owners in respect of such withdrawals where the PRSA owner is not resident in the State.

 So anyone can have a PRSA and they do not have to be resident in the state.

 

[murphaph1]

Thanks for that bstop. Some concrete text to get our teeth into.

Pensions Manual Chapter 24...

24.1 Introduction
A Personal Retirement Savings Account (PRSA) is a long-term savings account designed to assist people to save for their retirement. PRSA products are approved jointly by Revenue and the Pensions Authority. Anyone may contribute to a PRSA but there is not an automatic entitlement to tax relief.

24.2 Tax relief
An individual who is not in pensionable employment is entitled to relief on contributions up to €1,525 even if the contribution exceeds the relevant age-related percentage limit (section 787E(4) TCA). This does not apply in the case of contributions to a PRSA for AVC purposes

AFAIK rental income and income from other investments is not eligible for relief, only earned income from employment or self employment. That is fine though as the idea is not to benefit from the relief on contributions but the ability to claim the Employee Tax Credit against rental income on drawdown and for the rest of my wife's life. Once this is all set up it's just a single box to tick in Form 11 and that's money in the pocket.

24.10 Non-residents and vested PRSAs
PAYE Exclusion Orders
Income and assets retained in a vested PRSA are beneficially owned by the PRSA owner. Withdrawals (including deemed withdrawals) from vested PRSAs are treated and taxed as emoluments under Schedule E regardless of the residence status of the individual. As with payments from an ARF or previously from an AMRF (see Chapter 23), withdrawals from vested PRSAs are not payments of pension and Revenue does not issue PAYE exclusion orders to PRSA owners in respect of such withdrawals where the PRSA owner is not resident in the State.

 So anyone can have a PRSA and they do not have to be resident in the state.

This is all good news in our case and would strongly suggest that my wife would be eligible for the Employee Tax Credit on this income as there are no exceptions on the deduction of this tax at source for non-residents. The fact the withdrawals from the resultant small annuity (probably better to take the annuity rather than the AMRF to absolutely guarantee the tax credit until death?) would be taxed in Ireland is no problem as the Irish-German DTT is one of those DTT's containing a clause which states that Ireland has sole taxing rights here, so this income will not be entered into the German return. I have been advised that it's sensible to add a cover letter to the return declaring the income and quoting the relevant passage from the DTT so the case worker can check that it's not taxable in Germany because although it is not taxable in Germany, it affects the rate at which tax is paid on our taxable income in Germany (the German Progressionsvorbehalt), as do the Irish state pension, although also not itself taxable income in Germany.

Granted this is a bit of paperwork but it's a once off hassle to enable my wife to tick the Employee Tax Credit box on the Form 11 for the rest of her life from pension drawdown. That could easily add up to several tens of thousands of Euro, especially if (as would be expected given our genders and ages) I predecease her by a number of years (then her Irish income would double as she'd inherit my remaining share of the rental properties). In fact it may well be the case that she hits the 75% threshold Irish/worldwide income threshold and can claim the €1700 credit in full every year at that stage.

The only real hurdle here seems to be finding a provider who will accept a German resident. Or we use the home address for correspondence for a few months. If they ask for utility bills or whatever then we won't falsify anything. That's fraud. But if they just ask for an Irish correspondence address we can provide one, and a PPSN of course. I have found in practice that changing address to non-resident causes far fewer alarms to go off than many people think. It's run of the mill for people to take out mortgages, set up pensions etc. and then leave the country. Banks usually just don't care. My Ulster Bank mortgage that was recently cleared and supposedly only for owner occupied properties never caused UB to raise an eyebrow when I told them I now lived in Germany and that I'd like to update the correspondence address. They weren't about to go digging through the mortgage contract. They just updated my correspondence address and that was it. They even provided a little tip that if TRS was being claimed it should be stopped if I was no longer to be the owner occupier! Same with my AIB accounts and cards. They just changed the correspondence address and to this day I have a free AIB credit card (no stamp duty as a non-resident). BoI even opened a current account for me while I was already a non-resident (in the days before SEPA was being properly implemented). In short, financial institutions care a lot less about a change of address this than people think. That's been my personal experience anyway. In Ireland there is no compulsory registration of abode like in Germany. Nobody really knows when you are living there or not. I suspect very many people live off their savings in Ireland and are completely unknown to any Irish authorities, and all quite legally too. My wife and I work remotely, we could move to Ireland for a few weeks some summer and stay in the home place, "fully intending" to take up residence, my wife even going as far as to open a PRSA, but then we change our minds and return to Germany less than 183 days after moving to Ireland. I don't think any laws would be broken in doing this. Plans change etc.

 

[AAAContributor]

The idea would be that my wife could take out a small PRSA and then draw down as soon as possible to avail of the Employee Tax Credit

How much will the ARF be worth (after the 25% tax free lump sum has been taken from the PRSA)?

Are you expecting to obtain the full credit (€1,775 from 2023, if drawing down €8,875+ p.a. from the ARF) or will the credit have to be capped?

Employee Tax Credit

This page provides information on the Employee Tax Credit

www.revenue.ie

 

[murphaph1]

I am hoping that the full credit will be available against rental income in the same way my mother's rental income in Ireland sees the benefit of the Employee Tax Credit merely because she is in receipt of the state pension. The fact my wife's PRSA derived income would be tiny is irrelevant once she is entitled to claim the credit in the first place, I believe. Her rental income would be well over the 8,500 minimum to obtain the full credit (assuming her German income falls below 25% of her worldwide income when she retires). The ARF will be worth almost nothing as the minimum payment would be made into the PRSA as late as possible before the earliest possible drawdown of the PRSA. I don't know how early you can drawdon from PRSAs. I'm assuming it won't be as early as my Irish DC pension which allows me access from age 50.

 

[AAAContributor]

The ARF will be worth almost nothing

Thanks for the clarification. Can I just check:

- Your wife has rental income against which she uses her personal tax credit currently;

- Your wife will open a tiny PRSA, vest it immediately, open an even smaller ARF (75% of the tiny PRSA) and drawdown a tiny amount annually from it in the expectation that she will receive the full employee tax credit of €1,775 (from 2023, €1,700 currently);

- Your wife will utilise the full employee tax credit of €1,775 against the rental income, resulting in a higher effective net of tax return on the rental;

- Your wife will need to locate a product provider who will entertain the opening of a PRSA by a non-resident or alternatively your wife will move to Ireland for however long it takes to establish residency;

- The same product provider will have to be receptive to opening a tiny PRSA and administer a tiny ARF.

Is this the object of the exercise?

I have two further points to check:

1. Per the link above in my previous post, if you draw down €500 PAYE income from the ARF, the employee tax credit will be €100 (20% x €500), not €1,775;

2. If Ireland retains taxing rights to the ARF income, and assuming your wife is a 20% tax payer, will she not pay tax on the ARF income at 20% (leaving out USC) of €100 offset by a capped credit of €100, making the whole exercise pointless?

my mother's rental income in Ireland sees the benefit of the Employee Tax Credit merely because she is in receipt of the state pension.

How much of a pension does your mother receive per annum? Presumably a lot more than the tiny ARF drawdown amount?

Her rental income would be well over the 8,500 minimum to obtain the full credit

This rental income is non-PAYE income. It does not count for the purposes of the employee tax credit. See the link I referred to previously.

 

[murphaph1]

Thanks very much for your post AAA. Your summary above is correct. I am pretty sure that when I left Ireland (quitting mid January and definitely not having anything close to €8500 or whatever the threshold was in 2009) that when I submitted my Form 11, I was allowed the full PAYE Tax Credit as it was then against my rental income for that year. Perhaps this was a bug in ROS at the time and it should not have been allowed. I will soon (sooner than I'd like!) be in a position to test this out again as I myself will be entitled to the Employee Tax Credit when I start drawing down my occupational pension benefits at age 50. It will be interesting to see if ROS then performs the calculation you have done above. I note that the linked site says specifically:

If your yearly income is €8,500 or more, you will be entitled to the full amount. If your income is below €8,500 then the amount of the credit is capped at 20% of your yearly income. For example, if your yearly income is €5,000 the credit will be €5,000 @ 20% = €1,000.

It refers to income generally, not earned income. If they have since closed this "loophole" then I concur that the exercise as originally conceived would be rather futile. I would need to investigate if there is any point in my wife taking out a "real" PRSA in those circumstances, so as to achieve the minimum €8,500. There probably would not be.

 

[AAAContributor]

It refers to income generally, not earned income.

What does the very first sentence of the linked page say? You are being very selective in the words you want to read!

Download the ROS app to your desktop. If you run a dummy Form 11 for the circumstances above (I put in rental income of €20,000 and ARF income of €500 as a quick test) for 2021, the total credits were €1,650 + €100 = €1,750.

 

[murphaph1]

Well clearly I want to hope for the best while expecting the worst ;-) If one doesn't probe and look for the opportunities it's no fun.

 

[T McGibney]

It refers to income generally, not earned income.

Not true.

If they have since closed this "loophole"

There was never a loophole to this effect. The Employee Tax Credit has always been restricted to the quantum of the income giving rise to it. In other words, if your PAYE income is trivial, your Credit will be correspondingly trivial.

 

[boomshine]

The reference to rental income is a red herring. Your query relates to investing after-tax money in a PRSA. The source of that money isn’t relevant.

As I understand it, no company will facilitate a PRSA for a non-resident. It’s different when someone already has a PRSA and leaves Ireland, he or she can retain it.

If you have a PRSA, lets say Zurich for 10 years you got 100k in there, you move to a tax free country such as the Middle East can you withdraw the pension tax free?