In June 2011 the UK government changed the law relating to tax residence to bring the UK into line with Ireland and other European countries as relating to income and capital gains tax. The law effectively means that tax residency will be assessed for as much as three years after leaving the UK, and earning a substantial income in the UK or visiting for extended periods of time will avoid losing tax resident status.
This has tremendous implications for expatriate residents in Spain who may inadvertently fall foul of UK tax residence regulations due to owning income generating property in the UK, or who choose to spend several months in the UK to avoid weather.
The new tax residence laws take effect from the 6th April 2012. The new regulations are intended to make it harder for UK residents to escape their tax obligations and also ensure that new UK residents are more easily brought into the UK tax system.
On initial reading the act seems confusing, but in essence the following guidelines apply and need to be born in mind by expatriate residents.
PART A: You are considered a non UK resident if:
a) You were not resident in the UK in all of the previous three tax years, and were present in the UK for less than 45 days in the current tax year.
b) You were resident in the UK in one or more of the previous three tax years, and were present in the UK for fewer than 10 days in the current tax year.
c) Or left the UK to carry out full-time work abroad provided they that you were present in the UK for less than 90 days in the tax year, and no more than 20 days are spent working in the UK in the tax year.
PART B: You are considered a UK resident if:
a) You were present in the UK for 183 days or more in a tax year.
b) You have one or more homes only in the UK.
c) You carry out full-time work in the UK.
PART C: Connection factors for UK residency
This section states that the number of days spent in the UK, together with the connections one has established with the UK, make an impact on whether you qualify as a non-UK resident and thus outside the current UK taxation bracket.
Specifically, the five connection factors take into account;
Family: whether the spouse or civil partner, common law partner, or minor children are resident in the UK
Accommodation: whether the individual has accessible accommodation in the UK that they have made use of during the tax year under review
Substantive UK work: whether the individual works for periods of time or earns a substantive amount of UK income, but doesn’t work full time in the UK
UK presence in previous years: whether the individual spent more than 90 days in the UK in either of the previous two tax years
More time in the UK than other countries: whether the individual has spent more time in the UK during the tax year under review than any other single country.
The Connection factors are assessed in the following way to determine residency if the individual was NOT resident in all of the previous three years;
| Days spent in UK | Impact of connection factors on residence status |
| Fewer than 45 days | Always non-resident |
| 45 – 89 days | Resident if individual has 4 factors or more (otherwise not resident) |
| 90 -119 days | Resident if individual has 3 factors or more (otherwise not resident) |
| 120 – 182 days | Resident if individual has 2 factors or more (otherwise not resident) |
| 183 days or more | Always resident |
The Connection factors are assessed in the following way to determine residency if the individual was resident for one of the previous three years;
| Days spent in UK | Impact of connection factors on residence status |
| Fewer than 10 days | Always non-resident |
| 10 – 44 days | Resident if individual has 4 factors or more (otherwise not resident) |
| 45 -89 days | Resident if individual has 3 factors or more (otherwise not resident) |
| 90 – 119 days | Resident if individual has 2 factors or more (otherwise not resident) |
| 120 – 182 days | Resident if individual has 1 factor or more (otherwise not resident) |
| 183 days or more | Always resident |
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The article may seem like difficult news for some expats, but do you realize that American citizens are taxed on their worldwide income no matter where they live, no matter how long they’ve lived outside the EEUU? Dual citizenship is not recognized by the EEUU, so one is stuck filing and paying American taxes until one dies or renounces American citizenship. The accepted procedure for expats living in countries that are party to a double-taxation agreement, such as Spain, is to file Spanish income tax first and pay it, then file American tax forms with the special form showing what was paid to Spain and a copy of one’s Spanish tax filing. Thus, one’s individual tax liability is not double, but only about 1.5 times. There are different rules for corporations.