BLOG POST BY OUR PATRON DEL CANTO CHAMBERS
With lockdown restrictions easing and Brexit around the corner, the UK is set to see an influx of expatriates from the EU. With Spanish economy set to suffer most from the coronavirus crisis, it is expected that many Spaniards will look at settling here too.
If you are considering moving to the UK, or if you are currently residing here, it is important to understand the tax and legal implications that you´ll need to deal with.
The first thing to consider is the EU Settlement Scheme (EUSS), which allows EU, EEA or Swiss citizens and their families to apply to get either settled or pre-settled status to continue living in the UK after 31 December 2021.
EU citizens have until 30 June 2021 to apply under the Scheme, and if they do not apply on time, they will be unlawful residents in the UK.
There are possibly a significant proportion of Spanish nationals living in the UK who are unaware of the need to apply for settled status and vulnerable EU citizens may lose their UK residency overnight. On 10 October 2019, Minister of State for the Home Office Brandon Lewis confirmed that those who do not have settled status after the deadline could be subject to deportation.
Issues often arise for many residents when the automatic checks that examine records for the seven years predating the application show that their tax footprint doesn’t reflect their residence, which can cause real headaches for those looking to make the most of the EUSS.
To qualify for settled status under the EUSS scheme, you must show residency in the UK for a continuous period of at least five years; showing under five years’ residence will mean qualifying for pre-settled status.
The tax system in the UK. Domicile or residence?
The UK tax system is relatively straightforward if you only have income and gains from UK sources for the duration of your stay here, but things can get complicated if you are resident in the UK and continue to have foreign income and gains.
Examples of foreign income and foreign gains include:
- Earnings relating to work carried out in another country.
- Interest on overseas investments.
- Overseas pension income.
- Sale of shares held overseas.
- Earnings from a UK company paid for work performed overseas.
- Property income from property owned in another country.
- Business profits from a company in another country.
It is vitally important to have a strategy and a long-term plan for income and taxation in place. Proper consideration of your tax status on moving to the UK will require professional advice from a UK tax expert to make the best decisions for the most effective management of your financial portfolio.
All your worldwide income is taxable, in principle, according to the UK rules. But if you are non domiciled your overseas income may be exempted according to certain rules. Most Spanish nationals being in the UK for less than 15 out of the last 20 years may qualify as non domiciled. This is something to be confirmed by your tax adviser. If you have any doubts, please contact us.
According to English law you are domiciled in the country in which you have your permanent home, or which you consider to be your ‘real’ home. For UK purposes, domicile is not the same as residence or nationality, although both may be important in determining domicile. Under UK law, you cannot have more than one current domicile.
Domicile is largely determined by your intention to stay indefinitely in the UK. However, you do not need to break ties with your domicile of origin i.e. Spain. It is possible to be domiciled in one country but resident in another.
Why is your domicile status important for tax purposes?
Deemed domicile status was put under the spotlight by HMRC on 6 April 2017, when new rules came into force, requiring more specific conditions to be met in order to obtain this status. Your domicile status is a fundamental factor in determining your liability to UK tax on your worldwide income.
The two conditions required for deemed tax domicile are as follows:
Condition A:
To meet this condition you must:
- Be born in the UK.
- Have the UK as your domicile of origin.
- Be resident in the UK for 2017 to 2018, or later years.
Condition B:
- You’ve been a UK resident for at least 15 of the 20 tax years immediately before the relevant tax year.
What should I do with my Spanish tax position?
The last tax year in the UK started on 6 April 2020 and will end on 5 April 2020. In Spain the tax year started on 1 January and will end on 31 December 2020. If you move to the UK before the 1st of July you will be non resident in Spain but will become resident in the UK for the current tax year, if you remain here until April 2021.
There are several aspects and good practices to be followed as soon as you land in England such as registering in the Spanish Consulate and the NHS as well as in the Social Security System. You should also register in the electoral roll (Council) and advise the Spanish tax office of your non resident tax status, otherwise you could be taxed in both countries. Please note that you will become a non-resident in Spain and there are several matters to consider if you have property, business or investments there.
Of course, tax advice must be sought and you are more than welcome to visit our offices at 218 Strand in London. Del Canto Chambers offers special rates to members of the Spanish Chamber of Commerce. We are tax qualified in England and Spain and hold rights of audience in all courts in both countries. Please contact us for an informal discussion.
Claudio Rodriguez is a European Registered Lawyer and a member of the Lincoln’s Inn and Spanish abogado working for Del Canto Chambers.