Dual Tax Residence

It is possible to be resident in more than one country at the same time. For example, if your main home is in France then you will be tax resident there even if you spend less than six months there. You might commute on Sunday evenings, returning to France on Friday evening, in which case you may find that you are spending more than six months in the UK (or more than 90 days on average over a four-year period) and are both UK and French tax resident.

Help is at hand: the Double Tax Treaty (DTT) between the UK and France (which is typical of most EU DTTs) states that there are a series of tie-breaker clauses, since in the end you can only be tax resident in one country, not both. Most of the treaties have these standard clauses, and generally speaking you are likely to be found to be tax resident in the country that is where your centre of vital interests is the closest. 

Employment earnings

If you are employed in one country only, then the employment earnings would be liable to income tax in that same country; that is, where you undertake the employment. If you undertake the employment in both countries, then part would be taxed in one country, and the remaining part in the other country. 

Usually the DTT between the two countries would state that where an individual is tax resident in one country, but performs his employment duties in the other, then the employment income would be taxable only in that other country and not the country of residence. However, the employment income is taken into account in determining the rate at which other income might be taxed in his home country.

In some circumstances, individuals normally resident in one country but on an assignment overseas, might find that there are certain tax exemptions available.

Social charges

If you work wholly in one country within the EU, then you are liable to pay social security contributions in that country. If you work in more than one EU country, then you will pay contributions in the country where you are 'habitually resident'. There is no minimum limit to the number of days worked in either country. 

Artists, entertainers, sportsmen, oil industry workers and air crew

There are different rules applying to these professions and advice should be taken. 

Self-employment

These tax rules are similar to the employment rules set out above, but you should take specific advice for your circumstances. 

Your own limited company

If you were to go and live overseas, having owned and traded through a UK company, you will need to take careful advice to understand your tax obligations. 

A UK incorporated company is always treated as UK tax resident and therefore liable to UK corporation tax on worldwide income and gains. 

Other countries systems don't work quite the same. For example, the French system does not tax a UK company since they don't have the same concept as in the UK of corporate 'residence' nor even the UK concept of 'management and control'. In France, a UK company is liable to French taxation if it undertakes business in France, in which case the profits so arising will be taxable. However, there can be problems in identifying exactly what "business in France" means. The matter is complex, and specific advice must be taken. 

Capital gains

If you are resident in one country, then you would be normally liable to the capital gains tax regime of that same country. However, if you were liable to capital gains tax on gains made in another country, you can usually deduct the tax so paid against your home country's liability. 

Health system

If you have moved to another EU country, and are in receipt of a state pension you will normally be exempt from any contribution regardless of income level into the new country's health system (e.g. France).

If you are not in receipt of a state pension, and you have lived in the other country for less than two years (and paid UK national insurance contributions in the previous two years) you would normally get free cover for up to two and a half years (you need to complete form E106). 

You need to also check that you can access your new country's health system. It may not be as easy as it might at first appear. If you live in your new country for more than three months, you are no longer entitled to treatment on the UK NHS. You would have to repatriate to the UK and live there for at least six months, and provide evidence that you have returned, before you could access the UK NHS. 

The EHIC (which replaces form E111) only provides temporary health cover when you are a tourist in that other country. It is not applicable if you have gone to live there. If you are under retirement age, and you have gone to live, say, in Spain, and have not made contributions into the social charges in Spain, then you may not be covered under the Spanish health system; you may find that you have to pay privately (it depends on the local province's rules). A serious health problem is bad enough, but you could find yourself with substantial bills for medical expenses. You will find temporary cover for healthcare in Spain under the form E106 system, subject to your recent UK national insurance record being up to date.  This should last for up to two and a half years. If you happen to have an ongoing liability to Class 1 or 2 UK national insurance contributions by being employed or self employed in the UK, then you should be able to obtain health cover for you and your family under a form E106 for up to five years at a time for so long as you continue paying into the UK system. Alternatively, if you were paying into the overseas system, you would normally also receive cover. Either way, you need to check this one out carefully.

Travel costs

You would not normally be able to deduct the costs of travel from home to office, even though home might be in an overseas country and the office might be in the UK.  Similarly, travel to your place of employment in the UK from an overseas location would not normally be tax deductible.

VAT

This is a complex subject. If you are self-employed, or operating through a limited company, take advice.

Other income (rent, interest, pensions, and dividends)

Rent would usually continue to be liable to tax in the country where the property is located, but also liable to tax in your new country of residence (but you can deduct the tax paid in the first country). 

Interest would be liable to tax only in your new country of residence.

Pensions are taxable in your new country of residence only, and not the UK, unless the pension is one from government service.

Dividends may be liable to tax in your new country (but not in the UK), but again advice needs to be taken.

Inheritance and succession taxes

This is another complex area, but you could be liable to inheritances taxes both in the UK (as a UK domicile) but also in your new country (as a permanent resident).  

The author, David Franks of Blevins Franks, is a specialist in the expatriate financial sector.


First published in June 2007.
Some information contained within this article may have changed since it was first published. Homes Overseas strongly advises you to seek current legal and financial advise from a qualified professional.

See Also:   Tax law