Location, location, location
Where Are You Tax Resident?
Text: Gavin Scott, Senior Partner, Blevins Franks
The issue of where you are resident for tax purposes can be more complicated than many people realise, and getting it wrong can be costly. It is important to be armed with all the facts and keep detailed records.
Each country uses different domestic rules to work out who is resident for tax purposes. If you satisfy these rules, you are resident there for tax purposes. You cannot choose where to pay tax; you can however choose where you spend your time, to determine residence. You can choose when to sell assets, to determine where you pay tax on the gains. But this is where it gets complicated. It is easy to slip up and specialist guidance is essential.
In Portugal, you are resident for tax purposes if you spend over 183 days here a year. Alternatively, if you have a “permanent home” available here, you may be deemed to be resident. Residents are liable to Portuguese tax on worldwide income and, to some degree, capital gains (unless you qualify for the Non-Habitual Residents Regime).
UK residents are liable for UK tax on worldwide income and gains. The UK residence rules are far more complex – before April 2013, the concept and definitions of “residence” were not defined within legislation. Taxpayers had to rely on case law and HM Revenue & Customs (HMRC) guidance to determine their position. There were many grey areas.
The new Statutory Residence Test, in effect since April 2013, provides more certainty but is still complex. It is based on a combination of day-counting and the number of ties you have with the UK. For three years, the old and new rules work alongside.
HMRC are catching up with people over their residence position several years ago. Two recent court cases highlight the importance of taking expert advice; following it carefully and keeping meticulous records.
Mr and Mrs Rumblelow, living in Portugal, lost a court case with HMRC over their residence status and have a tax liability of £600,000 to settle. On the other hand, HMRC lost a similar case against Mr Glyn, who saved around £5.5 million in tax through careful planning and record-keeping over his move to Monaco.
It is essential to take specialist advice from an adviser who is up to date and experienced with the residency and tax rules of both the UK and Portugal.
Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.
To keep in touch with the latest developments in the offshore world, check out the latest news at www.blevinsfranks.com
