BackThe recent announcement by the Chancellor in the context of the spring budget has marked a significant milestone in the field of international taxation in the UK, with substantial changes to the rules regarding tax domicile. This change, seemingly stemming from policies proposed by the Labour Party, constitutes a long-debated revision regarding the tax domicile regime, with successive governments flirting with its abolition.
Current Rules and New Provisions:
Currently, individuals not domiciled in the UK have the option to be taxed using either the arising basis or the remittance basis. Under the arising basis, all taxpayers, regardless of domicile, pay taxes on their worldwide income. On the other hand, the remittance basis involves paying taxes only on foreign income and gains remitted to the UK, with the loss of certain tax reliefs and the imposition of a remittance charge after a certain period of residence.
From April 6, 2025, radical changes will be implemented, eliminating the remittance basis and thus rendering the concept of tax domicile irrelevant. Instead, a new system based on residence will be introduced, granting exemption from UK tax on foreign income and gains to newcomers to the UK for the first four years of residence, provided they have not been resident in the country for the previous 10 years. This benefit must be claimed annually, involving the loss of the personal allowance and the annual exempt amount, similar to the previous rules of the remittance basis.
It is crucial to note that for individuals with residence in two countries, split-year treatment and the “residence treaty” will no longer apply, with each year of residence in the UK being counted according to the new system.
Transitional Provisions:
Generous transitional rules have been established for those currently using the remittance basis and residing in the UK. These include taxing 50% of foreign income during the fiscal year 2025/26, a two-year period to remit income and gains before April 2025 to the UK at a reduced tax rate of 12%, and relaxing mixed fund ordering rules during this period.
Implications for Inheritance Tax (IHT) and Trusts:
Regarding Inheritance Tax, a shift towards a residence-based approach is anticipated, although the government is still in the consultation process on this matter. However, it has been confirmed that assets outside the UK settled in a trust before April 2025 will remain outside the scope of the UK’s IHT regime.
The new rules for the chargeability of assets in trusts will depend on whether the settlor meets residency criteria at the time of asset settlement and/or the occurrence of certain charges. It is expected that the design of this system will be subject to consultation.
Recommendation: Spanish Special Regime (Beckham Law) as an alternative:
Considering the recent changes in the UK tax legislation affecting non-domiciled residents, our recommendation is to consider the Spanish Special Regime, known as the Beckham Law, as a viable and beneficial alternative.
Reasons to choose the Spanish Special Regime:
Competitive Taxation: One of the main advantages of this system lies in the fixed tax rate of 24% for the general taxable base up to 600,000 euros; beyond this point, the tax rate increases to 47%.
Exemption from reporting assets and rights located abroad: Another significant tax benefit is the exemption from filing model 720 for assets located abroad, as well as the possibility of only paying Wealth Tax regarding properties held in Spain.
Flexibility and Simplicity: The Beckham Law offers a simple and transparent tax structure, facilitating tax compliance for expatriates and international professionals.
Incentives for Highly Qualified Professionals: Originally designed to attract international talent, this law has been expanded to include other qualified professionals, thus fostering Spain’s economic and technological development. Starting in 2023, it is also allowed to extend this special tax option to the spouse and minor children of the main applicant who relocate with them.
Recommended actions:
Evaluate eligibility: Analyze whether the requirements to benefit from the Special Regime are met, such as not having been a tax resident in Spain in the previous 5 years and being willing to transfer tax residency to Spain.
Specialized advice: Seek specialized tax advice to fully understand individual implications and ensure regulatory compliance.
In conclusion, the Spanish Special Regime under the Beckham Law represents an attractive and beneficial alternative for those affected by changes in UK tax legislation. It offers competitive taxation, flexibility, and administrative simplification. Considering this option can help optimize international tax situation and ensure efficient tax management.
B Law & Tax International Tax & Legal Advisors.
“En B LAW&TAX somos especialistas en asesoramiento fiscal internacional tanto a empresas como para particulares. Si desea ampliar la presente información, estaremos encantados de poder atenderle en el 917817194 o en [email protected]”
