As a rule of thumb, as a Brit living in Spain you will be considered resident if you remain in Spain for 183 days or more in any tax year. On top of this, if you leave Spain to work abroad for more than one year, you must not be back in the UK for more than 91 days, on average, in any 365 day period, during your time abroad. Basically, if you are a Spanish resident, you will need to pay income tax on all of your income, no matter where in the world you earn it. However, a non-resident of Spain is only required to pay tax on any Spanish income.
For many retired Brits living here, your country of domicile is particularly important when considering your liabilities under inheritance tax law. A person’s domicile is usually where you were born, or can be the same domicile as your parents (usually your father’s). Your domicile can be changed in exceptional circumstances to be the country that you have chosen to make your permanent home, but this involves severing all ties with your domicile country.
Changing your domicile is not an easy thing, however, and can prove to be particularly troublesome. One of the most famous examples of someone falling foul of inheritance tax due to domicile status is that of Richard Burton. Although born in the UK, Burton had lived in the US for 27 years and died in Geneva, where he had taken residence for tax purposes. Upon his death, HMRC pursued a claim for inheritance tax. This may seem unreasonable, as he had not lived in the UK for many years and did not pay UK taxes.
However, under UK law, a person’s domicile is considered to be the place where, although it may not be their home, they have the intention of returning. And this is where Burton’s estate came unstuck. Although he had not lived in the UK for decades, did not have a property there and was buried in Switzerland, during his first marriage to Elizabeth Taylor, Burton had bought burial plots in his home town of Pontrhydyfen in Wales. As such, HMRC successfully argued that he was still domiciled in the UK as he had the intention of returning there, consequently reaping £2.4m in inheritance tax.
Although you may not have the same wealth as Richard Burton, it is nonetheless important to understand the implications your residential status has on your inheritance tax liabilities both here in Spain and in your country of domicile, which for most of us is the UK.
If you want to discuss your financial situation, you can contact us here.
Located at the Southern tip of the Iberian Peninsula, the British overseas territory of Gibraltar looks South over the confluence of the Mediterranean Sea and the Atlantic Ocean. This small but strategically important isthmus of land, is home to over 32,000 people in just 6.7 km2 (2.6 miles2) of land. As a British crown dependency, the laws and language are those of the United Kingdom, but Spanish is also widely spoken along with the hybridised form of the two known as Llanito. Due to its location and close links with the UK, Gibraltar has long been a favoured destination by British expats looking for sunnier climes and an attractive tax regime. Although it’s not quite as well-known as some other offshore territories such as Monaco and the Cayman Islands, Gibraltar tax rates make it a very attractive choice for anyone looking to relocate within easy striking distance of the UK and Western Europe.
New figures from the Office for National Statistics (ONS) have shown that the number of British expats living in Spain vastly outnumbers Spaniards living in the UK. What’s more, the number of Britons over 65 years old living in Spain has more than doubled in the past decade.