The True Costa Living

							Date and name of Publication - 9th June 2003 - Published in Sur In English
Title of Article - The True Costa Living



                       The True Costa Living
Kevin Neal
Managing Director
Kevin Neal International SL,
Has provided a casebook this week of many clients who come for advice on this
subject on a regular basis.

I am approaching 60. I have taken early retirement from a company pension
scheme and live in Spain with my Partner most of the year but travel back home
to the UK for long visits with my Family. I have a portfolio of over £200,000 and
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receive a widow’ pension and a company early retirement pension. I am also
due to start receiving a regular income from an AVC and Company pension on
my 60th Birthday. How does the Revenue work out whether I am subject to UK
tax and how does this affect how my income is taxed?

With regard to most clients that approach me for financial planning, this would be a
similar example of somebody that telephones me on a regular basis with the above
scenario, which I believe needs to be explained in reasonable detail with respect to the
UK taxes and possible Spanish Succession and Inheritance Taxes.

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An Individual’ residency status needs to be agreed by the Inland Revenue and has to
be determined separately for each tax year. If an individual spends six months or
more in the UK in a tax year, they are UK resident. The practice is to use 183 days as
the measure excluding arrival and departure dates. Individuals will also be treated as
resident if they make habitual and substantial visits to the UK. The Revenue regards
visits as:-

   ?   Habitual, if they continue for four consecutive years.
   ?   Substantial, if they average 91 days a year or more. The average is taken over
       four years.

If a resident leaves the UK with the intention of returning for substantial visits, they
keep their resident status, which is the status of an individual in any one-tax year, or
can be ordinarily resident, which is the status of an individual on a regular basis, year
after year. Practice on the date when ordinary residence starts varies with the length
and purpose of the visits.

My client was born in the UK, with her domicile or origin being the UK. She has not
bought a house in Spain and has not tried to gain Spanish citizenship or residency.
These are just a few of the indicators the Revenue will consider if she tried to claim a
new domicile of choice as she has not made it obvious that she is to live permanently
in Spain. Although she may in some years spend very little time in the UK, she is
domiciled in the UK and may be deemed to be ordinarily resident. In this case, she
may be subject to the following taxes:
     ?     Income tax is charged on worldwide earned and investment income, whether
           or not it is brought into the UK.

     ?     Capital gains tax is chargeable on the realisation of capital gains made
           anywhere in the world.

     ?     Inheritance tax is chargeable on gifts of assets anywhere in the world.

If she is deemed non-resident for any tax year, she will be subject to the following
taxes:

     ?     Earned income – there is no UK income tax liability on employment income
           where duties are performed wholly outside the UK. Earnings for duties in the
           UK remain taxable unless they are only incidental to the overseas duties.

     ?     Overseas investment income – there is no UK income tax liability on overseas
           investment income.

     ?     Inheritance tax – will remain chargeable on gifts of assets anywhere in the
           world.

Pension from the State, the Company pension scheme and the AVC will be taxed as
earned income. Tax can be calculated under self-assessment or following completion
of a tax return.

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My client’ portfolio consists of medium-risk collective investment schemes, held in
UK PEPs and ISAs where possible to remain sheltered from tax. No further ISA
investments can be made if she is non-resident. The other holdings will be subject to
income and capital gains tax at her marginal rate.

AVC will be treated separately and all options considered. It could be that she could
buy a more appropriate annuity based on her circumstances. To ensure all state
benefits are being provided, a DSS brochure – Going Abroad and Social Security
Benefits, reference G129 – can be provided and explained from Kevin Neal
International SL.

Inheritance tax may be paid should her assets increase in value. It is vitally important
that a valid will is in place, not only in the UK but also in Spain, not only to be tax-
efficient to ensure her wishes are carried out.

We have not even considered the probability of Succession Tax and other taxes but
advise our clients to seek specialist advice in Spain.

These answers are based on the assumption that further information should be required and provides only a guide to some of the
relevant routes and hazards that should be covered in advising their clients on these particular matters.


Kevin Neal International are based in Sotogrande. Please call us on 956 796 589
for further information or a free confidential meeting.