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Residence or domicile? That is the question

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.

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Auto-Enrolment increases number of savers, but are they saving enough?

Piggy bankStatistics from the Office for National Statistics (ONS) have shown that a record number of savers are now members of workplace pension schemes.

The figures show that the proportion of employees who are contributing to a company pension has risen significantly in the five years since Auto-Enrolment (AE) began.

AE was introduced in 2012 and makes it compulsory for employers to automatically enrol all eligible employees into a pension scheme unless the employee actively opts out. An employee is eligible for AE if they are aged between 22 and the state pension age and have a salary of more than £10,000.

In 2012, prior to AE, 47 per cent of UK employees were enrolled on a company pension scheme. This figure has now risen to 73 per cent in 2017. In other words, there are over 9.5 million more people saving for their retirement than there were five years ago, and it’s mainly thanks to AE.

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Most British expats in Germany decide to stay

St Mary's ChurchNew figures published by the Office for National Statistics (ONS) have given a more accurate idea of the number of Britons living in Germany (and vice versa) and also show that many UK expats in Germany have made the decision that they will stay.

The report was compiled as part as a series and published as a response to the need for data on the British lives that will be most affected by Brexit. It included statistics on where British expats live and work, how long they’ve lived there, and what sort of employment they most often take on.

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