In recent years, the issue of tax residence has become a prominent topic in the UK. The unsatisfactory law and practice in this area has led to a number of high profile cases taken to Court whereby HM Revenue & Customs have successfully contended that a number of taxpayers have not shed their UK tax residence.
The March 2011 Budget announcement that a statutory residence test would be introduced in the UK with effect from 6 April 2012 was therefore very welcome. Despite the announcement initially being met with some trepidation the consultation paper setting out the proposed new UK residence test was a welcome surprise. The test appears well thought through and means that depending on the position of the taxpayer as a “leaver” or “arriver” they can spend a clearly defined number of days in the UK each year. The actual number of days an individual is entitled to spend in the UK is determined based on the number of any other “connecting factors” to the UK (e.g. family, home, previous time spent in the UK, time spent in other countries when compared with the UK and time spent working in the UK).
Under the proposal set out in the consultation paper, the new residence test appears to give a more agreeable and flexible result whereby individuals can arrange to either leave the UK with more clarity than ever before or foreign nationals (or former UK resident individuals) can spend a certain number of days in the UK without triggering UK residence.
Historically, British nationals have had a close affiliation with the Iberian countries – Spain, Portugal and Gibraltar – not only in terms of holiday destinations but also for second homes and retirement.
As well as offering a warm climate, convenient European location and an appealing lifestyle, there are very favourable tax regimes in Iberia for new/returning residents. The regimes attract highly skilled individuals as well as those with more passive sources of income (e.g. from investments/pensions).
In certain circumstances, it is possible to live in Spain and Portugal and pay a reasonable (20-24%) tax rate on local source income, including earnings, whilst foreign source income and capital gains may be exempt from local tax in some situations. Gibraltar also has a capped tax regime for skilled workers and for individuals with a net worth in excess of £2million.
When considering relocation to another jurisdiction, we would recommend that you seek advice and support to help you plan both the logistics and ensure you are moving in the most efficient way for your finances. If you are considering a move to a sunnier climate, you can take advantage of BDO’s recently launched UK-Iberian Tax Desk. The primary objective of this desk is to provide clients with UK/Iberian interests a holistic service offering by combining our professional services with those of the BDO international network and our external contacts/intermediaries.