When you move from one country to another, or buy and spend time in a property abroad, your first tax consideration should be to establish where you are resident for tax purposes.
When you move from one country to another, or buy and spend time in a property abroad, your first tax consideration should be to establish where you are resident for tax purposes.
The most well-known rule is the 183-days-a-year rule, which many countries use. Spend 183 days in a country in one tax year and you are tax resident there; spend less than 183 days and you are not.
There are however other factors that can make you liable for tax in a country even if you spend under 183 days there. People do get caught out and end up with unexpected tax bills, sometimes large ones.
This applies to countries like Spain, France and Portugal, though the UK?s current residency rules are particularly complex and vague. Residence is largely determined by HM Revenue & Customs (HMRC) guidance, as opposed to law, and principles established from case law. There has been no statutory definition of residence, and although this will change from April 2013, this is too late for some people.
Day counting is not enough if you want to be sure you cannot be deemed resident or ordinarily resident in the UK for tax purposes. First of all, you need to be able to show that you have left the UK. If you retain strong ties it will be hard to prove that you have made a distinct break.
Even if you meet the local tax residency criteria in the country you are living in, you could also be resident in the UK at the same time.
Since this is a complex matter, for certainty on your situation you should seek expert advice. Blevins Franks pays very close attention to the residency rules in both the UK and overseas, and how the two interact and affect British expatriates.
HMRC has won a number of tax residency court cases. Last October the First-Tier Tribunal ruled in the tax authority?s favour again, this time against a woman who was found to be resident in the UK for capital gains tax purposes even though she had been living in Spain for a number of years at the time.
This case is another example of how difficult it can be to cease being resident in the UK for tax purposes, particularly if your spouse remains UK resident.
Lynette Dawn Yates, a UK citizen, moved to Spain in 2000 for health reasons. The plan was for her husband to retire and join her, but he was unable to do so and she returned to live permanently in the UK in 2008.
She initially rented and then bought a property in Spain and spent more than 200 days a year there on average. HMRC assessed her for capital gains tax on asset disposals in three UK tax years; years when she had spent 72, 83 and 108 days in the UK.
Ms Yates appealed the assessments on the grounds that she was not a UK resident and was exempt from capital gains tax under the terms of the UK/Spain double tax treaty.
The tribunal accepted that she was resident in Spain for tax purposes, but also accepted HMRC?s argument that her main home was in the UK and that she was also UK resident. It then came down to where she was resident under the treaty rules.
There were a number of reasons why she was considered to be UK resident. For a start, she had a permanent home available in the UK and her husband remained UK resident throughout. She visited her husband and other close relatives frequently, staying in the marital home. She used her UK address for her bank and credit card accounts. She continued to use her doctors in the UK and to receive a disability allowance only available to UK residents. She remained on the electoral register. Her telephone bills were also used as evidence ? the fact that she made more calls to the UK than in Spain showed that her social life was primarily UK based.
The Judge accepted that Ms Yates was resident in Spain at the time, but said that at the same time she was resident in the UK, and also resident in the UK when considering the tax treaty rules because her personal and economic ties were stronger with the UK than in Spain. He ruled that she was resident and ordinarily resident in the UK throughout her time in Spain, and so liable to UK capital gains tax on the disposals made in the relevant years.
This case demonstrates how connecting ties can be more relevant than day counting. British expatriates need to be aware of what ties you retain with the UK and what significance they can have on your tax position.
Do not assume that because you are resident in one country you cannot be resident in another. In this case tie-breaker clauses in the double tax treaty would normally determine where you pay tax, but it may not be the country you expect.
The Statutory Residence Test will come into effect on 6th April in the UK. Ms Yates would have been clearly UK resident under the new rules. However, while the test does provide much more certainty, it is very long and detailed. To be sure you have understood your situation correctly, you should still take professional advice from Blevins Franks on your situation.
28th January 2013
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
