United Kingdom: Exclusivity regarding tax residence of natural persons.

The UK likes to go it alone: ​​it left the EU, kept its own currency, and then headed in the opposite direction. In terms of taxes, they will not be lower: we comment below on some characteristics regarding the tax residence of natural persons.

Tax year in the UK, and Julius Caesar is the culprit.

In Spain and in most of our surrounding countries, the fiscal year begins on January 1 and ends on December 31, which unifies the period of tax obligations at the international level.

Well, the same doesn't happen with the UK, where it starts on April 6 and ends on April 5 the following year. Ireland followed the same calendar until 2001, when it chose to coordinate with the rest of Europe.

The origins of this British peculiarity go back a long way. In 1582, Pope Gregory adopted the Christian lands directly, and the rest of the surrounding areas gradually.

This was not the case in Britain, where the Gregorian calendar was not adopted until 1752, when it had already accumulated a time difference of eleven days compared to the rest of Europe.

To implement the change, the British had to eliminate those divergence days, and to do so they decided that that year's financial year would begin on March 25 (the usual start date), but would end on April 4 of the following year. …with the aim of not losing annual revenues. Therefore, from now on, the fiscal year should start on April 5.

In 1800, the British Treasury again adjusted the start date of the fiscal year, moving it to April 6. The year in question would have been a leap year according to the Julian calendar, but not according to the Gregorian calendar, so the treasury considered it a leap year to get an extra day of collection. This is how the fiscal calendar for taxing natural persons has been drawn up ever since.

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Regarding the prospects for change, the UK administration, through its Office for Tax Simplification, has advocated aligning the tax calendar with the international environment, considering 31 December, or 31 December, as two possible dates for the end of this. 31, which is just a suggestion at the moment.

Potential effects on tax residency

This inconsistency in the calendar maintained by the United Kingdom can lead to inconsistencies in tax residency matters, both for people who have periods of conflict due to dual residency, or the lack thereof.

The majority of countries surrounding us exercise jurisdiction as a standard to tax the tax residence of natural persons in the territory for a given calendar year, subjecting their worldwide income to tax in such a case.

On the other hand, tax residency is a concept defined by each internal regulation, and the criteria for its determination may vary – and no less so in the case of the United Kingdom, as we comment below.

As a solution to a double taxation situation, double taxation avoidance agreements (“CDIs”) can be used, and more specifically their tie-breaking rules on tax residency (“equivalence rules”).

British “Legal Residency Test”.

As mentioned, the criteria used by UK internal regulations to determine tax residence differ from those typically used in continental Europe.

Let us remember, for example, that in the case of Spain, any person who remains in the territory for more than 183 days of the calendar year is considered a tax resident, or the center of his economic and/or family interests is located there (the spouse is not legally separated)., minor children dependents).

The UK has designed its own tax authorities “Legal Residency Test” To determine whether or not a person qualifies as a tax resident in a particular period. This test involves a series of rules based on the number of days in the fiscal year and previous days the subject has remained in the territory, as well as whether he or she has held a full-time job there or maintains his or her sole property. If this analysis does not lead to a clear result, another, more complex review must be performed Test sufficient linksTaking into account some additional types of relations with the country.

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According to these atypical rules, a person can be classified as a UK tax resident, having stayed in the country for a few days of the year, or as a non-resident, having been there until the 182nd of the tax year, which we remember is naturally different.

In addition, there are situations where from a UK perspective a person may be deemed to be a tax resident and a non-resident divisional resident during the tax year (“Treatment of division of the year”).

In short, the internal regulations of the United Kingdom provide for rules for determining tax residence that are far removed from those that we can usually find in other neighboring countries, which should lead us to a more complex analysis in those cases where there is any connection to a natural person who owns the territory.

“Non-resident” (“non-resident”)

For UK tax purposes, domiciled/non-resident status is also important. This is a different concept from citizenship or residence, which refers to a person's “real” country, or “permanent domicile.”

Regardless of being a tax resident, an individual may be considered a non-resident (“unknown”)when he or one of his parents was born outside the UK, and plans to return to his or her place of origin at some point.

This consideration provides the possibility of being subject to a special tax regime called the “remittance basis”, under which a taxpayer can choose to pay tax in the UK only on income from sources in the country and on income from foreign sources that is repatriated to her (and not on her global income), and for this reason It has been used as an interesting international tax strategic tool.

This special system was introduced in 1799, to protect those with property abroad from extraordinary taxes imposed during the Napoleonic Wars, so it lost its original purpose. In fact, there are many political scandals resulting from the use of this special tax system, such as the scandals of the Prime Minister's own wife.

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In recent statements, the British Labor Party expressed its firm commitment to amending the non-resident system and making it more restrictive, all in light of the general elections that will be held in the coming months, so those affected must begin preparing for possible reform.

Tax residency certificates for “non-residents” and their validity in Spain

Since non-residents are taxed in the UK according to the special “remittance basis” system, and not based on their global income, the Spanish Tax Administration has been questioning the tax residence certificates of this type of taxpayer for non-compliance with the requirements. provided for in Article 4.1 of the CDI (reserve included in 2014 for non-residents).

In accordance with several recent orders, the Supreme Court is expected to soon rule on the probative value of a residence certificate issued by the UK tax authorities when it has not been shown to have been taxed in that country on global income at a rate similar to our worldwide income. IRPF.

For the time being, it confirmed in its ruling of 12 June 2023 that the Spanish Tax Administration cannot question a tax residence certificate issued by another administration to apply CDI.

In any case, although the adoption of tax residence in one of the Contracting States is a prerequisite to be able to access CDI benefits, the main purpose clause, a general anti-abuse rule introduced in all signed agreements, must also be respected by Spain. Through the multilateral instrument.

The opinion expressed in this article is exclusively that of the author and does not reflect and cannot be related to his professional environment.

Sacha Woodward

"Wannabe writer. Lifelong problem solver. Gamer. Incurable web guru. Professional music lover."

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