British people make up one of the highest percentages of expats in the world, it is estimated by the World Bank that between 4.5 million and 5.5 million Britons live abroad – around 7-8% of the UK population. Spain has become a firm favourite for people choosing to settle down overseas.
The United Nations Population Division found that over 381,025 official British expats were in Spain during 2013, with even more who are unofficially living ‘under the radar.’
But choosing to relocate to Spain can mean new complications for Brits. Knowing the difference between domicile and residence is important for tax purposes, making an assumption could lead to incorrect tax declarations which can lead to penalties and heavy tax bills.
Even if you don’t need a visa to stay in Spain, you will need an NIE No. (similar to a National Insurance No.) and if planning to stay permanently then you should apply for Residencia. These items make you a legal resident in Spain and are necessary for employment and other matters.
Permanent residents will first need to register on the “Padrón” at the local Town Hall before applying for their residencia status. This is like the Electoral Roll in the UK and allows you to vote in local and EU elections. Until recently padróns were relatively easy to obtain as central government funds are allocated based on the numbers registered to each municipality. The rules have been tightened up since Brexit and qualifying criteria can vary between different Town Halls.
Once you have your padrón you can apply for your residencia. A person who applies for full residency can enjoy many benefits. For example, if you purchase then sell your home in Spain you may be liable for capital gains tax if you have not applied for residency. You will also be able to apply for a Spanish driving licence, Pensioner’s card and a SIP card giving you access to the State Health system.
However, the main test for tax residency is the 183-day rule. This means that if you are present in Spain for more than 183 days in the Spanish tax year (lasting from January to December) you will be deemed to be tax resident. A tax resident is liable for income tax on their worldwide income and would also be liable for other taxes including Spanish Succession (Inheritance)Tax. The total number of days does not have to be consecutive. This rule applies whether or not you have applied for or have received your residencia. As it is possible to be liable for tax in both countries there is a Dual Tax Treaty with Spain which your tax adviser would utilise to ensure you do not pay the same tax twice, although you may be liable for any difference.
Domicile is a separate legal term in the UK and strangely is not determined by where you live. A domicile is the country in which a person officially has as their natural home, or a substantial connection with, and could eventually return to if residing abroad. When born, you’re automatically assigned to the same domicile as your father if your parents are married and this is defined as your domicile of origin. Domicile has a huge bearing on Inheritance Tax in the UK as UK domiciles are liable for UK Inheritance Tax on their worldwide assets.
Of course, there are many questions and worries circulating about Brexit, and what it would mean for tax-paying expats. The term EU citizenship is used frequently. Citizenship is effectively the same as nationality and is generally where you were born or hold a Passport. Whilst Britain remains in the EU, British Nationals are afforded EU citizenship which confers the same rights as any national in any of the EU member states.
As of writing, it is unclear what impact the Brexit negotiations will have on the rights of British expats both here in Spain and the rest of the EU.
Perhaps the best advice for British expats who intend to stay in Spain would be to ensure you have got your padrón and residencia in place which will surely strengthen your position as to your rights as a Spanish resident regardless of Brexit.