Irish Independant 04.08

Our little place in the sun could cast a very long shadow
From The Irish Independent
(25th April 2008)

THOUSANDS of sun worshipping Irish people could be swapping their pina coladas for paperwork and, in worst-case scenarios, prison sentences, as the Revenue Commissioners step up their investigation into the huge number of foreign properties bought in the past number of years.

It may emerge that tens of millions of euro in tax and penalties could be owed by those who succumbed to the foreign property dream and snapped up apartments and villas from Lisbon to Bucharest.

Earlier this year financial services group IFG estimated that 100,000 properties in Spain alone were owned by Irish nationals - the vast majority of whom are likely to be liable for taxes at home.

Some experts say that figure is extremely conservative and that the actual number of properties owned there by Irish people is significantly higher.

In the 2005 tax year, just 4,450 individuals informed the Revenue Commissioners of a combined €56m in rental income from foreign properties, suggesting that many owners are knowingly evading their tax liabilities or are simply oblivious to them.

Tax consultant Paul Gosal, who is with Cork-based McGuireDesmond, said it was possible that many people who bought foreign properties were simply unaware of their tax obligations in relation to the property at home, but that they could be in for a nasty surprise.

"If you're resident in Ireland, your worldwide income is taxable here and that includes rental income from foreign property," he said, pointing out that the firm's own clients were made fully aware of their obligations and are tax compliant.

Any person who is a tax resident in Ireland and sells a foreign property for a profit, he warned, had to pay 20pc capital gains tax on those profits.

One of the prime targets for the Revenue Commissioners is people who acquired foreign property with income they did not declare at home.

That could leave them open to a double whammy of taxes and penalties on both the income they failed to declare at home that was used to buy a foreign property, and on any rental income from the property itself. Prison sentences are also a possibility for those found guilty of such offences.

Dublin solicitor Tom McGrath, who specialises in foreign property transactions and ensuring clients are tax compliant, says the move by the Revenue Commissioners to examine purchases abroad is "long overdue".

"This has been an unregulated industry, but the question is how will the tax inspectors trace the foreign property buyers?"

The Revenue Commissioners, headed by Josephine Feehily, says it has identified 2,000 Irish foreign property owners by monitoring advertisements and websites and examining foreign land registries.

Tens of thousands of such property owners are likely to come under the Revenue's spotlight. Anyone who has made a deliberate effort to evade taxation could be liable for 100pc of the outstanding liability, be subject to an audit going back four years, and could have to pay a 100pc penalty, as well as having their name published in the national media.

Earlier this month the Revenue Commissioners dropped an attempt to force estate agents Savills HOK to reveal clients who had bought foreign properties since 2002.

The firm mounted a High Court challenge and the Revenue Commissioners withdrew its request. However, the Revenue has said it is in discussions with its own legal team to develop an alternative approach to unearth the names of buyers.