Following the rumours of a potential new ‘exit tax’ for Brits leaving the UK which have since been ruled out, we look at the UK taxes and fiscal responsibilities Brits may actually have to deal with when moving to Spain and living here.
In recent months, there have been reports in the British press of a possible new exit tax for UK entrepreneurs leaving Great Britain.
Speculation regarding this supposed personal or corporate exit tax suggested it would mirror other countries’ expatriation frameworks, whereby a potential 20 percent capital gains tax would be imposed on unrealised gains from business assets, private company shares, and intellectual property when an individual or company relocates their tax residency overseas.
The UK Department for Business, Innovation, Science and Trade has unequivocally ruled out this exit tax amid growing concerns that Prime Minister Andy Burnham’s Labour government might introduce a ‘settling-up charge’ to curb wealth flight and capture tax revenues from fleeing millionaires.
Senior business officials have also confirmed to the Financial Times that plans for such exit levies have been completely shelved.
Therefore, the UK does not currently have a direct exit tax.
That doesn’t mean that UK taxpayers do not have ongoing fiscal responsibilities when moving abroad, though.
When you leave the UK to move to Spain there are many factors you have to consider and lots of paperwork you have to deal with.
There may be certain taxes that you’ll still owe or have to pay there before you leave or even after you become a resident in Spain.
Most people won’t continue to pay income tax in the UK, as their new tax residence will be in Spain if they spend over 183 days here a year or meet other specific requirements.
According to the UK Government website, you must tell HM Revenue and Customs (HMRC) if you’re:
- leaving the UK to live abroad permanently
- going to work abroad full-time (including for a UK-based employer) for at least one full tax year
- a foreign national leaving the UK
If you’re self employed, you can tell HMRC you’re leaving through your Self Assessment tax return. To do this, you should complete the ‘residence’ section (form SA109) and send it by post. The website says you cannot use HMRC’s online services to tell them you’re leaving the UK.
If you were employed in the UK and are leaving your job and moving abroad, you should fill out a P45, as well as P85 form. The latter tells HMRC that you’ve left or are leaving the UK and want to claim back tax from your UK employment, if you’re owed any.
The UK tax year runs from April 6th to April 5th the next year, while the Spanish tax year runs from January to December like a normal calendar year. The UK offers Split-Year Treatment under the Statutory Residence Test (SRT), so you’ll only pay tax in the UK for the part of the year that you lived there.
Spain on the other hand does not offer this, so you will generally be considered a tax resident as soon as you’ve spent over 183 days there.
By telling the HMRC when you moved, they will be able to work out if you owe extra tax or if you’re due a refund.
Those still earning any money from their UK business will generally also have to pay certain taxes in the UK.
Property taxes
If you own a property in the UK, there may be other taxes you may have to pay.
The UK government websites states “You may need to pay UK tax if you’re non-resident and have UK income”, for example, you could be taxed if you have income from renting out a property in the UK.
If you rent out your property, generally it’s the tenant’s responsibility to pay the council tax, but if you don’t rent it out, you will likely have to pay the council tax yourself.
Also, if you leave your house empty, there could be extra taxes to pay as an empty home premium.
Remember, when you become a Spanish tax resident, they will also tax your income from renting out your UK property. The good news is that the UK and Spain have a double tax treaty meaning that you won’t be taxed twice in both countries on the same thing.
If you sell your UK property, you may still be liable to pay non-resident capital gains tax on it to the UK government, depending on your circumstances.
National insurance
If you live abroad you can choose whether or not to pay national insurance contributions in the UK. You may choose to do this if you are only moving to Spain temporarily and want to eventually move back to the UK or you want to be able to claim a UK pension in the future.
Pensions
Because of the double tax treaty, if you receive a UK state pension or private pension, these will generally be taxed only in Spain, so you shouldn’t have to pay any extra taxes to the UK on them. It will depend on your individual circumstances though.
If you receive a UK Government Service Pension for example, if you worked in the Civil Service, Armed Forces, Police, Local Authority, your pension will likely still be taxed in the UK under Article 19 of the treaty.
Banking
If you continue to keep a UK bank account after leaving, be aware that interest or investment income from UK based sources may still be taxable in the UK.
You should inform your bank if you are no longer a UK resident as there will be certain offers not available to you anymore, such as opening an ISA.
Any interest you make from these accounts will be taxable in Spain too remember.
