Cormac

Hi everyone,

I have read some excellent posts on this site, but nothing that specifically answers my question, hence the post!

Does anyone know,

If I am tax resident in both Spain and the UK according to each countries definitions, do I have requirements to file tax returns in both countries?

I have spent more than 183 days this tax year in Spain, but according to the HMRC SRT I am also a uk resident for tax purposes. Under the second automatic uk test on the SRT, it determines me as UK resident for tax purposes.

If I can only be tax resident in one country, do I need to file a Spanish Tax return and fill in modelo 720 declaring all overseas assets? I have no property, bank account or anything else here except an NIE (not certificate of residency) and rental contract.

The following seems to be the relevant part of the DTT, but what is not clear is whether it means I only declare in the UK, or whether it is telling me I declare in both and offset what I earn in one against what I pay in the other (which I'm not sure is relevant to me anyway as I don't have any income that comes from Spain - no job, no bank accounts, no property).

This is my first year as tax resident in Spain, and I have income both from savings and ebook royalties that mostly sell in the US (95%).

http://www.hmrc.gov.uk/taxtreaties/s...k-protocol.pdf

Many thanks, anyone who can help (fred james that means you )


Article 4
RESIDENT
1. For the purposes of this Convention, the term “resident of a Contracting State”
means any person who, under the laws of that State, is liable to tax therein by reason of
his domicile, residence, place of management, place of incorporation or any other
criterion of a similar nature, and also includes that State and any political subdivision or
local authority thereof. This term, however, does not include any person who is liable to
tax in that State in respect only of income or capital gains from sources in that State or
capital situated therein. The term “resident of a Contracting State” includes a pension
scheme established in that State.
2. Where by reason of the provisions of paragraph 1 an individual is a resident of
both Contracting States, then his status shall be determined as follows:
a) he shall be deemed to be a resident only of the State in which he has a
permanent home available to him; if he has a permanent home available
to him in both States, he shall be deemed to be a resident only of the
State with which his personal and economic relations are closer (centre
of vital interests);

Fred James

You will almost certainly be classed as resident in Spain as you meet the 183 day residence criteria. This will effectively cancel the UK 90 day rule.

You can deduct any tax paid in the UK from the Spanish tax and you may be able to get HMRC to pay certain income such as pensions tax free in the UK.

Whether you have to also declare in the UK will depend on the source of the income. All income generated in the UK (with some exceptions particularly pension income) will always be taxed in the UK irrespective of tax residency.

If tax resident in Spain you will have to declare your worldwide income and also worldwide assets under the form 720 process if over €50k in any category.

A discussion with HMRC about the status of your situation would be a good idea.

Cormac

Hi Fred James,

Thank you for taking the time to respond.

On the 183 day spanish criteria - How does it cancel the UK rule? This doesn't really make much sense to me, if I am a UK citizen, with no other ties to Spain but the time I spend in the country. In fact, arguably, with many more ties to England (bank accounts / family / friends). I don't doubt you are right, but it still doesn't make any sense. Are you able to point me in the direction of legislation that confirms that?

I have no income arising from the UK, apart from a handful of ebooks sales online through Amazon.co.uk (and I'm not even sure if these count as arising from the UK as the purchases could have been made anywhere in the world and I'm not even sure that part of the company is based in the UK), and income on savings. All of which amounts to less than 3000GBP for the year.

I'll be calling HRMC again tomorrow to try and get some more clarification on this, but thought I'd open it up to the experts here, yourself included.

Many thanks again.

Fred James

Normally the 183 day rule trumps any other rule but the treaty says that if in doubt the two tax authorities will decide, which is why I suggested you contact HMRC for a ruling.

Quoting the full rule from the new agreement:-

2. Where by reason of the provisions of paragraph 1 an individual is a resident of
both Contracting States, then his status shall be determined as follows:
a) he shall be deemed to be a resident only of the State in which he has a
permanent home available to him; if he has a permanent home available
to him in both States, he shall be deemed to be a resident only of the
State with which his personal and economic relations are closer (centre
of vital interests);
b) if the State in which he has his centre of vital interests cannot be
determined, or if he does not have a permanent home available to him in
either State, he shall be deemed to be a resident only of the State in
which he has an habitual abode;
c) if he has an habitual abode in both States or in neither of them, he shall
be deemed to be a resident only of the State of which he is a national;
d) if he is a national of both States or of neither of them, the competent
authorities of the Contracting States shall settle the question by mutual
agreement.


As you can see it is not simple. The key question is where they consider your habitual abode to be and where your centre of vital interests is.

Habitual abode is simpler as spending more than 6 months there would tend to indicate that it is your habitual home but if your wife and children lived permanently in the UK that could change things.

As I said, time for a chat with HMRC.

Rosemary

As Concierge for the Spanish section of BE I would like to say hello and welcome.

BE is a very large expat website, so if you have problems finding your way around we have concierges who will try to direct you. The moderators for the Spanish forums are Mitzyboy and Fred James, moderators are there to ensure that the site runs smoothly within the rules of BE. Problems and complaints should always be addressed to a moderador who will look into the matter and deal with it efficiently and fairly. Our members who post in the Spain Forums are friendly and helpful with a wealth of knowledge of the issues of living in Spain. At the top of the page you will find a quirkily named thread called Free Beer which is full of important and useful information. Hope you enjoy your time participating in the forums.

Please let me know if you need any further help.

Rosemary

Cormac

Thanks Fred, very useful information. I wonder what exactly is meant by permanent home and centre of vital interests. I guess the key question would be habitual abode, if neither of these could be answered sufficiently. Thanks again.

guirijohn

If you are resident according to the Spanish law definition of residence you must file a Spanish tax return. Similarly you look at UK domestic law definitions to decide if you must file UK returns.

The double tax treaty defines residence only "for the purposes of this Convention", in particular to ascertain whether you are entitled to relief for income or gains that are taxed in both countries. The obligation to file tax returns, declaration of assets etc. is not dealt with in the Treaty. The domestic law definitions of residence are different from those found in the treaty, very different in the UK case.

When filing returns you can make a claim on the forms for double tax relief where applicable.

Incidentally I believe that Amazon channels its sales through Luxembourg, or at least it used to. It would be ironic if you were to pay UK tax on your sales and Amazon does not.

Cormac

hi guirijohn,

Thanks for your email. So does this mean if the UK considers me a tax resident according to their definitions, and Spain considers me a tax resident according to their definitions, I have to file a tax return in both countries, offsetting the tax paid in one against the other? The dual tax treaty is only in place to legislate in cases where there could be a claim for tax relief? It doesn't determine the obligations to file taxes in the first place?

Thanks again,

Cormac

snikpoh

That's how I understand it.

You'd have to submit two sets of tax returns.

guirijohn

Yes, you file tax returns in both countries and then you look to see in which country the double tax treaty considers you resident. Under the treaty you can ultimately only be resident in one country.

If the treaty says you are resident in Spain, you would declare your income in Spain and claim a credit for any UK tax paid on that income against the Spanish tax. On your UK return, if you have to file, you would simply declare the income and pay the UK tax. You could not claim credit for the Spanish tax because you would not UK tax resident under the treaty.

EMR

Be aware that as a non UK tax resident if the tax rates in your country of tax residence are higher than the UK you would have to pay the difference between that countries rate and the tax already paid in the UK.

Unluckyalf

I have a house, savings, bank accounts in the UK but I live and work in Russia over 300 days a year and have done for 10 years.

The first couple of years the UK sent me a tax return to fill in and I just filled in the bit that said number Of days out of the country. Then one year I was late returning it, as I was in Russia, and they fined me £100. I called them up, explained and they very politely said ok we waive the £100 and we will take you off our records so you don't fill a form in the UK. Just tell us when you ever return.

As I spend over 183 days a year in Russia I pay tax there. I declare for ax ample the interest on savings in the UK, which I receive gross, and pay 13% in Russia on it.

me me

Ours is quite a tricky case, with my OH being Spanish, but I never had dual nationality, I am British.

We have a home available to us in the UK and one in Spain, neither one is ever rented out.

Our 2 children live in the UK and are independent.

We have business interests in UK and in Spain,
We are looking to become non Spain residents in the new year, and we will look for a rental in either Italy or Portugal for about 5 months a year.

We hope that we will be classed as British residents even thou we may not spend 90 days in the UK, but as we will not be spending 183 days in Spain or wherever we decide to rent, then I hope we will not still be classed as residents in Spain.

At the moment we are seeking professional advice, but not finding easy, as everyone is an expert, but strangely they all give a different answer.

I hope that we can prove enough ties to the UK so that our main residence is considered to be there and not Spain.

EMR

If you retain a permanent residence in Spain and do not have your " primary residence " in the UK you may find that as far as Spain is concerned you are still tax resident there.

me me

Easy then we will spend over 90 days in our UK house and it will be our primary residence.