UK And Spain Tax Residence Issues

The UK government published a consultation paper in June outlining its proposals to introduce a statutory definition of tax residence from 6th April 2012. It is based on the principl

The UK government published a consultation paper in June outlining its proposals to introduce a statutory definition of tax residence from 6th April 2012. It is based on the principle that where someone is resident is more than just a question of where they spend their time. While the proposed tests do not completely eliminate day counting, they also impose a requirement to reduce the number of connecting factors to the UK.

There are different rules for ?Leavers?, ?Arrivers? (individuals who have not been UK tax resident in the previous three UK tax years) and ?full time workers abroad? (working under contract/s of employment with a minimum of 35 hours each week). You need to make sure you follow the rules for your specific situation ? it is not always as straightforward as you may think.

There are five newly defined connecting factors, which are:

1. Family in UK (spouses/civil partners and children under 18)

2. UK accommodation accessible to you as a place of residence

3. Substantive employment in the UK

4. UK presence in previous years (more than 90 days in either of the previous two tax years)

5. More time in the UK than another single country (this factor only applies to leavers)

Looking at the Leaver category, if you spend less than 10 nights a year in the UK in a tax year you will never be considered UK resident, even if you have connecting factors. If you spend over 182 nights a year in the UK, or if your only home is in the UK and you spend more than 10 days in the UK per year, you will always be considered UK resident regardless of how few other connecting factors you have.

Otherwise, whether or not you are UK tax resident depends on the number of nights you spend there in a UK tax year (ending midnight 5th April) and how many connecting factors you have. As a Leaver, if one connecting factor applies you can spend up to 119 nights in the UK without being UK tax resident; if you have two factors it reduces to 89 nights; if three factors 44 nights and if four or more apply you can only spend nine nights before being deemed UK tax resident.

We welcome these new rules as, if approved, they are much clearer and will provide more certainty. Nonetheless they are still complex and confusing to the non tax specialist and while they are no longer subjective and vague like the current guidance, the rules do remain complex.

You also need to consider the Spanish tax residency rules. Again, these are not based solely on day counting and while you are considered tax resident in Spain if you spend over 183 days a year here, you could also become resident if your ?centre of economic interests? (principal assets or source of income) or ?centre of vital interests? (spouse/dependant children) is in Spain.

It is possible to fulfil both the UK and Spanish residence criteria simultaneously, in which case the UK/Spain tax treaty has ?tie breaker? rules which override both the UK and Spanish domestic residence position. You need to review the terms of the treaty to establish where you are tax resident ? there are many cases where a British expatriate could be found to be UK rather than Spanish resident.

Blevins Franks keeps fully up-to-date with both UK and Spanish tax and residency issues and the impact they have on expatriates? wealth. We have over 35 years experience with international tax planning and will guide you through the rules, changes, impact and potential solutions.

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 must take personalised advice.