Pros and cons; changing tax residency

[laislica]

Retired from UK to Spain in 2000. Have property in Spain but nothing in the UK.

Married to a Thai and we spend our time between Spain and Thailand using a retirement annual visa extension and re-entry permits.

Wife has property in Thailand and a Spanish ID (renewed every 5 years) so she can come and go in Schengen countries as she wishes.

My state pension is paid directly to Spain.

The difference in tax rates between Spain and the UK is marginal so I never changed due to laziness.

Last visited the UK 4 years ago, wife was refused a visa to visit with me for a three week holiday with my family.

Wife and I have full NHS medical cover in Spain and EHIC cards when traveling in Europe.

Can anyone please flesh out the Pros and Cons for me?

Stay as a UK tax payer:

Pros;

Can get a UK driving license?

Cons,

Both Spain and the UK can (will) charge inheritance tax (death duties)

Change to Spain:

Pros,

No UK IHT.

Cons,

Have to get a Spanish DL.?

Change to Thailand;

Pros,

Tax figure much lower in Thailand than the UK or Spain?

Cons,

State pension frozen.

Do we lose NHS cover when visiting Europe?

[KittenKong]

IHT is to do with domicile, not tax residency. As far as that goes your wife not being allowed to visit the UK with you should count hugely in your favour when it comes to deciding whether you are domiciled there or not.

UK driving licences are issued according to real residency, not tax residency (though once you have one it isn't hard to keep it even if you leave). UK health care (not emergency care) and social security benefits also depend on real residency (though this may be changing quite soon), as does your EHIC.

Besides which it isnt really a question of you "choosing" where you are tax resident as each country has its own rules about income tax liability that may apply to you whether you choose it or not; generally according to how much of the year you spend there, whether you have income arising there and whether you own property there. And Spain seems to have its own special rules, just for foreign property-owners.

Thailand has some exemptions that you dont find in the EU that generally make it beneficial to be resident here.

From what you say it is likely that you should be declaring your income in more than one country anyway. But at least you can probably count on the dual-taxation treaties that the UK has with many countries to save you getting taxed twice on the same income.

[laislica]

Thanks very much KittenKong.

Maybe I should bite the bullet and phone the UK tax man and see what he says.

I know that they don´t like to let tax payers go....
I spend zero time in the UK and about 50-50 Spain/Europe and Thailand.

[pigeonjake]

if you are resident here in thailand but paying british tax you can fill in a p85 form and claim it back as you are none resident

[chiang mai]

There's a better than fair chance that non-resident (for tax) expats will loose their personal allowance, it may be worth you retaining tax residency on that basis alone.

[KittenKong]

Thanks very much KittenKong.

Maybe I should bite the bullet and phone the UK tax man and see what he says.

I know that they don´t like to let tax payers go....

I spend zero time in the UK and about 50-50 Spain/Europe and Thailand.

I doubt that the phone call will help you much. You dont indicate what your UK income is made up of but assuming it is just a state pension then you will be taxed on it there even if you aren't resident there. But you probably wont have much/anything to pay because of the personal allowance.

As I said, technically I suspect that you should be declaring your income in both the UK (because it arises there) and in Spain (because you have property there and your pension is paid there), and then whatever income tax you pay in one country will be deducted from that due in the other. The same dual-taxation rules generally do NOT apply to social security/wealth/social contribution taxes, and these are quite common in some Euro countries these days.

If you have other income (interest, dividends, private pensions, rent etc) then this may change things a lot as there are loads more rules about those.

[KittenKong]

if you are resident here in thailand but paying british tax you can fill in a p85 form and claim it back as you are none resident

Only some sorts of tax, and in some circumstances.

[laislica]

Thanks very much KittenKong.

Maybe I should bite the bullet and phone the UK tax man and see what he says.

I know that they don´t like to let tax payers go....

I spend zero time in the UK and about 50-50 Spain/Europe and Thailand.

I doubt that the phone call will help you much. You dont indicate what your UK income is made up of but assuming it is just a state pension then you will be taxed on it there even if you aren't resident there. But you probably wont have much/anything to pay because of the personal allowance.

As I said, technically I suspect that you should be declaring your income in both the UK (because it arises there) and in Spain (because you have property there and your pension is paid there), and then whatever income tax you pay in one country will be deducted from that due in the other. The same dual-taxation rules generally do NOT apply to social security/wealth/social contribution taxes, and these are quite common in some Euro countries these days.

If you have other income (interest, dividends, private pensions, rent etc) then this may change things a lot as there are loads more rules about those.

I have a UK based private pension and a few stocks n shares. I pay in the region of 4-5k GBP

I pay a property tax in Spain on my flat.

I quite like PigeonJake´s idea of claiming tax back from 2012 though but the state pension is under review so it might be good to wait until after it is increased?

[KittenKong]

There's a better than fair chance that non-resident (for tax) expats will loose their personal allowance, .....

I think this may prove very hard to implement, unlike the removal of the CGT exemption for non-residents (which will probably not apply to real UK expats anyway). Not much point worrying about it until it's decided anyway.

Besides which the test of tax residency will still depend on where you (mostly) live and where your income arises, and the decision will still be made by HMRC: it is never your choice, except in as much as you can choose to go and live somewhere else.

[KittenKong]

I have a UK based private pension and a few stocks n shares. I pay in the region of 4-5k GBP

I pay a property tax in Spain on my flat.

I quite like PigeonJake´s idea of claiming tax back from 2012 though but the state pension is under review so it might be good to wait until after it is increased?

I doubt that you could claim anything back, apart from perhaps some dividend tax on a few specialised holdings that are themselves based overseas but pay UK dividends, which isnt too common. One advantage of being non-resident would be that your dividends would not be subject to any extra income tax (such as if you were in the 40% bracket, which apparently you arent anyway), nor would you be subject to CGT if you sell your shares at a profit (ho ho). But if you were resident in Spain then it would all need to be declared there anyway (and I suspect that in your case it probably should be). Bear in mind that the automatic transmission of tax data in the EU gets better and better every day, and it's only that some countries are still in the dark ages that stops it being implemented fully already.

I think your main point of concern should be to determine to what extent you may already be liable to be treated as resident in Spain, and act accordingly. Possibly by decreasing the amount of time you spend there, and not having income paid there. All that said I am not an accountant and my knowledge of Spanish tax rules is very limited, though I do know a bit about pan-EU tax rules.

[pigeonjake]

if you are resident here in thailand but paying british tax you can fill in a p85 form and claim it back as you are none resident

Only some sorts of tax, and in some circumstances.

i worked for a scottish company, worked in brazil and paid british tax,

i got an accountant filled in a p85 and got my income tax back,

im just saying what happened to me, im not a tax expert, that why i got an accountant,

jake

[chiang mai]

There's a better than fair chance that non-resident (for tax) expats will loose their personal allowance, .....

I think this may prove very hard to implement, unlike the removal of the CGT exemption for non-residents (which will probably not apply to real UK expats anyway). Not much point worrying about it until it's decided anyway.

Besides which the test of tax residency will still depend on where you (mostly) live and where your income arises, and the decision will still be made by HMRC: it is never your choice, except in as much as you can choose to go and live somewhere else.

That's only partially correct, tax residency is determined by where you live, not by where your income arises.

http://www.cambridgetax.co.uk/ctp/New_Residence_Rules.html

And I do think that it's now far easier to manage/manipulate the rules than before, especially from the standpoint of wanting back in rather than wanting to get out.

[KittenKong]

i worked for a scottish company, worked in brazil and paid british tax,

i got an accountant filled in a p85 and got my income tax back,

I'm not saying you didn't. But it does all depend on the duration of the work and what you did before and after. I dont think your circumstances would apply much to someone drawing a UK pension.

[KittenKong]

That's only partially correct, tax residency is determined by where you live, not by where your income arises.

This is true, but I was trying to give a short answer in one sentence where HMRC take a novel to do it.

And I do think that it's now far easier to manage/manipulate the rules than before, especially from the standpoint of wanting back in rather than wanting to get out.

I wont argue with that either, though I cant think of many instances where HMRC would try very hard to stop anyone being considered as resident. But maybe this will increase if the personal allowance is actually removed for non-residents.

[laislica]

Many thanks for all the great input and the link to the rules.

[Guest]

Out of pure curiosity. Does the UK driving license have some other properties than simply being a license for driving vehicles? What is the difference having a driving license from UK or from Spain?

[KittenKong]

The UK driving licence can be useful as photo/address ID if you want to open a UK bank account etc. In all countries I have lived in you are only supposed to use a foreign licence for so many months after which time you should obtain a local one.

In practice one EU licence seems to be as acceptable as another in the EU.

[advancebooking]

In oz if you lose your residency for tax purposes you will suffer financially and pay much more tax - depending on your circumstances.

[laislica]

Out of pure curiosity. Does the UK driving license have some other properties than simply being a license for driving vehicles? What is the difference having a driving license from UK or from Spain?

No difference other than the paperwork to get one.

After 70, the UK gives a license for three years but Spain only one year.

Just more paperwork and timing of where you need to be and when.

(You may like to think that as an elder, retired person you are free to do what you can afford, but no, you are controlled)

I don´t want to stray too far off topic, BUT,

You may work and gain a state pension in the UK but if you choose to live in a territory outside Their scheduled area, they then Freeze your pension!

This is crazy as you will not have any costs to their National Health Service nor other social services!

Edited August 6, 2014 by laislica

[laislica]

In oz if you lose your residency for tax purposes you will suffer financially and pay much more tax - depending on your circumstances.

I read about a retired chap who married a younger Thai lady.

He took her back to Oz and they cut his pension - as your wife is below retirement age and should therefore work and keep you!

What a bunch of mean spirited Expletive deleted!!! (it began Bast and ended up ards!!)

Maybe a frozen pension is not so bad?

Two wrongs make a right?

[khunPer]

A few comments:

Change to Thailand:

Pros,

Money transferred from abroad to a foreigners private account is not taxed in Thailand if savings, and not earned in the same year (retired people live from savings only and the retirement pension earned will be saved abroad for next years spending).

Cons,

Inheritance tax of 20 percent may be implied in the future.

Edit: But presumably no IHT from property comming from abroad.

Edited August 6, 2014 by khunPer

[laislica]

A few comments:

Change to Thailand:

Pros,

Money transferred from abroad to a foreigners private account is not taxed in Thailand if savings, and not earned in the same year (retired people live from savings only and the retirement pension earned will be saved abroad for next years spending).

Cons,

Inheritance tax of 20 percent may be implied in the future.

Edit: But presumably no IHT from property comming from abroad.

Great stuff.

It´s good to ask and not rush blindly into changes.

The major problem I see is getting the UK Tax man to let me have my private pension without tax.

Since private pension funds are made - before tax, I can see why the Tax nan would want to recover taxes from the benefits.

My problem is that, for a number of years, whilst working, I was a higher rate payer, required to make an annual return and once they have their claws in ......

[Jonmarleesco]

The NHS rules are expected to change in favour of UK expats, generally.

Thailand is likely to introduce IHT and UK IHT is a tax on your worldwide assets.

[jpinx]

A few comments:

Change to Thailand:

Pros,

Money transferred from abroad to a foreigners private account is not taxed in Thailand if savings, and not earned in the same year (retired people live from savings only and the retirement pension earned will be saved abroad for next years spending).

Cons,

Inheritance tax of 20 percent may be implied in the future.

Edit: But presumably no IHT from property comming from abroad.

Great stuff.

It´s good to ask and not rush blindly into changes.

The major problem I see is getting the UK Tax man to let me have my private pension without tax.

Since private pension funds are made - before tax, I can see why the Tax nan would want to recover taxes from the benefits.

My problem is that, for a number of years, whilst working, I was a higher rate payer, required to make an annual return and once they have their claws in ......

As far as I can tell --

you can tell your PRIVATE UK pension provider to pay your monthly pension into any bank in the world. If the bank is in a non-EU/EEA bank they will/should not deduct any tax.

your UK state pension will always be taxed by UK HMRC - even if it's paid into a bank at the north pole!!!

edited to add -- if your UK state pension is paid outside the designated group of countries with whatever reciprocity agreements, you will lose the "extras" (fuel allowance, xmas bonus, etc) and annual increases

Edited August 6, 2014 by jpinx

[jpinx]

The NHS rules are expected to change in favour of UK expats, generally.

Thailand is likely to introduce IHT and UK IHT is a tax on your worldwide assets.

------

Not wishing to hi-jack the thread, but anyone who falls foul of IHT is an idiot. It's so easy to get rid of the "surplus" before you run out of time. It'll be interesting to see what Thailand allows as an IHT-free amount and what the rules will be regarding gifting - how long must the gift have been made before you die?

[laislica]

The NHS rules are expected to change in favour of UK expats, generally.

Thailand is likely to introduce IHT and UK IHT is a tax on your worldwide assets.

------

Not wishing to hi-jack the thread, but anyone who falls foul of IHT is an idiot. It's so easy to get rid of the "surplus" before you run out of time. It'll be interesting to see what Thailand allows as an IHT-free amount and what the rules will be regarding gifting - how long must the gift have been made before you die?

This is exactly what I need tp know about.

More please.

Is it automatic that my wife will own 50% of everything from the date we married, so I should now only declare "my" part of any gains, interest etc.?

Otherwise, do we need joint accounts, not for savings, got less of them now, but for stocks and shares?

[chiang mai]

As far as I can tell --

you can tell your PRIVATE UK pension provider to pay your monthly pension into any bank in the world. If the bank is in a non-EU/EEA bank they will/should not deduct any tax.

your UK state pension will always be taxed by UK HMRC - even if it's paid into a bank at the north pole!!!

edited to add -- if your UK state pension is paid outside the designated group of countries with whatever reciprocity agreements, you will lose the "extras" (fuel allowance, xmas bonus, etc) and annual increases

Not correct unfortunately. The issue is where does the private pension income arise, if it's earned in the UK then it doesn't mater where it's paid, if tax is due on it then you can't escape it, unless you go the QROPS route.

And state pension is not taxed at source, if you have personal allowance headroom room then no tax is due on it, if you do not and you have other income that arises in the UK, that will be taxed at a higher rate to cover the UK state pension tax that is due.

[jpinx]

As far as I can tell --

you can tell your PRIVATE UK pension provider to pay your monthly pension into any bank in the world. If the bank is in a non-EU/EEA bank they will/should not deduct any tax.

your UK state pension will always be taxed by UK HMRC - even if it's paid into a bank at the north pole!!!

edited to add -- if your UK state pension is paid outside the designated group of countries with whatever reciprocity agreements, you will lose the "extras" (fuel allowance, xmas bonus, etc) and annual increases

Not correct unfortunately. The issue is where does the private pension income arise, if it's earned in the UK then it doesn't mater where it's paid, if tax is due on it then you can't escape it, unless you go the QROPS route.

And state pension is not taxed at source, if you have personal allowance headroom room then no tax is due on it, if you do not and you have other income that arises in the UK, that will be taxed at a higher rate to cover the UK state pension tax that is due.

Maybe this is something new? What is QROPS ?

My UK private pension provider (Pru) asked me where I was resident in order to deduct the correct tax.

State pensions are not taxed at source, but they are always liable for UK tax at whatever is the appropriate rate according to your allowances and code.

[jpinx]

The NHS rules are expected to change in favour of UK expats, generally.

Thailand is likely to introduce IHT and UK IHT is a tax on your worldwide assets.

------

Not wishing to hi-jack the thread, but anyone who falls foul of IHT is an idiot. It's so easy to get rid of the "surplus" before you run out of time. It'll be interesting to see what Thailand allows as an IHT-free amount and what the rules will be regarding gifting - how long must the gift have been made before you die?

This is exactly what I need tp know about.

More please.

Is it automatic that my wife will own 50% of everything from the date we married, so I should now only declare "my" part of any gains, interest etc.?

Otherwise, do we need joint accounts, not for savings, got less of them now, but for stocks and shares?

You probably need to look up the rule on UK IHT online. There are lots of permutations between husband and wife, children, etc. There are tax free allowances and gift allowances on a sliding scale of years since the gift was made.

If you are having trouble getting the information I suggest you need a professional. This forum is fun and free, but no replacement for getting proper advice.

[chiang mai]

As far as I can tell --

you can tell your PRIVATE UK pension provider to pay your monthly pension into any bank in the world. If the bank is in a non-EU/EEA bank they will/should not deduct any tax.

your UK state pension will always be taxed by UK HMRC - even if it's paid into a bank at the north pole!!!

edited to add -- if your UK state pension is paid outside the designated group of countries with whatever reciprocity agreements, you will lose the "extras" (fuel allowance, xmas bonus, etc) and annual increases

Not correct unfortunately. The issue is where does the private pension income arise, if it's earned in the UK then it doesn't mater where it's paid, if tax is due on it then you can't escape it, unless you go the QROPS route.

And state pension is not taxed at source, if you have personal allowance headroom room then no tax is due on it, if you do not and you have other income that arises in the UK, that will be taxed at a higher rate to cover the UK state pension tax that is due.

Maybe this is something new? What is QROPS ?

My UK private pension provider (Pru) asked me where I was resident in order to deduct the correct tax.

State pensions are not taxed at source, but they are always liable for UK tax at whatever is the appropriate rate according to your allowances and code.

You'll forgive me, but based on all the things you have said thus far, you need to seek professional advice on this subject, especially if you are unaware of QROPS!

At a high level: for the time being all British tax payers receive a personal allowance, it's currently about £10k a year. All income that arises (earned) in the UK is added up and the personal allowance is deducted from the total. Where the total is less than the allowance, no tax is due, regardless of whether it's investment income, private pension or state pension money. But where the total income is higher than the personal allowance, that balance becomes taxable.

Most expats are able to move their investments off shore to escape tax, private pensions can be moved using the QROPS system (google QROPS). State pension cannot be moved off shore, it can be paid anywhere but it can't be moved in the same way that QROPS permits.

None of these things are new in any way.

Finally and for the benefit of the other poster who raised the issue of IHT:

UK IHT is due on assets over £325k, it's double that amount for a husband and wife where assets are held in joint names - IHT does not apply to the Thai wife of a UK citizen. I strongly suggest you seek professional advice on this subject also.