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Whose tax is it anyway?

Published 11/11/2010

Whose tax is it anyway?

Think you know something about tax? Here’s a little quiz for you:

Case study 1:
Mr. A - Rich and famous person lives in Switzerland and is a resident in Switzerland. When he dies he wants his ashes to be spread in Wales. Where should the inheritance tax on the property he bequeaths be paid to? Switzerland or the UK?

Case study 2:
Mr. B - Resident in Spain, lives in Spain, pays taxes in Spain, has UK golf club membership, son is at UK university. Where should be pay his taxes?

Case study 3:
Mrs. C - Resident in UK. Has a holiday home in Spain, visits Spain for two months every year. Where should she pay her taxes?

Think you know the answers?
Read on...

In the first case study
, believe it or not, the answer is the UK. At least this is the case that HMRC made. They argued that inheritance tax was still payable by Richard Burton’s inheritors in the UK because he evidently still had emotional ties there and had an intention to return!

In the second case study, give yourself a pat on the back if you said Spain. However, be aware that although in this case it is Spanish tax that Mr. B should pay, HMRC did open up an investigation to check whether he should be paying tax in the UK as well. Fortunately he had completed all his Spanish paper work and was able to demonstrate through his tax declarations that the ties to the UK did not oblige him to pay any tax over there.

And finally, the third case study. The correct answer is the UK and Spain. This is where many non-residents with holiday homes in Spain get confused. It might come as a surprise that although there is a double tax agreement between the UK and Spain and although Mrs. C was already being taxed on her income in the UK she also needed to pay Spanish income tax on her holiday home here.

As a resident in the UK who is paying tax there, Mrs C. does not have to pay tax on all her worldwide income in Spain. However, she does have to pay what’s called ‘imputed income tax’ on her holiday home. That’s because even though she doesn’t rent it out she could do and if she did she would need to pay tax on the rent.

It is rather confusing, especially when we talk in the UK about our income tax being related to our salary or self-employed income. In the UK if we have two houses we only have to pay income tax if we actually rent one out. That’s not the case in Spain.

If this is news to you, don’t worry. Making your annual tax declaration and paying imputed income tax is neither expensive nor difficult. It just needs to be done. Ábaco are making declarations for non-residents from now until the deadline of the 31st December. You might not be a member of a golf club or a multi-millionaire but the tax authorities are still after what they can get. Make sure it’s not you they’re chasing.

To find out more about imputed tax and the penalties of non-payment please read the article ‘31st December – your last chance’


Susan Partridge Helme

Susan Partridge Helme
Tax Advisor

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