Tax Residence in Bulgaria

Tax residence in Bulgaria is determined largely by one simple rule – if you spend more than 183 days a year in Bulgaria, you are regarded as being resident there for tax purposes.

Tax Residence in More than One Country

Remember that you can be a tax resident in more than one country under the respective rules of those countries. For example, you might spend 230 days of every year in Bulgaria and 135 days in England. In this case you could end up, under the rules of each country, being responsible for paying the same tax in two or more countries.

Bulgarian properties for sale

holiday village in Bulgaria

This would be unfair, so many countries have signed reciprocal double taxation treaties, and the UK and Bulgaria have such a treaty. It contains ‘tiebreakers’ and other provisions to decide, where there is the possibility of being required to pay tax twice, in which country any particular category of tax should be paid. The basic principle of the double taxation treaty is to protect people from being taxed twice for the same activity.

Decisions to Make about Residency

The most basic decision that you will have to make when planning your tax affairs is whether to cease to be resident in the UK, whether to cease to be ordinarily resident here and whether to change your domicile to another country. Each of these has many consequences, many of which are not obvious.

Green hills in Bulgaria

The second consideration is when in the tax year to make these changes.

For many ordinary people, getting these decisions wrong can lead to unnecessary extra taxation and a great deal of aggravation and inconvenience. It is vital that you seek proper professional advice from specialist lawyers, accountants or financial advisers, all of whom should be able to help you.

Bulgarian mountains

Taxes Payable in the UK

The significance of the residence rules is that you will continue to be liable for some British taxes for as long as you are either ordinarily resident or domiciled in the UK. The decision on your UK tax residence will be determined by the information you provide to the authorities.

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Broadly speaking, if you leave the UK to live in Bulgaria:

• You will continue to have to pay tax in the UK on any capital gains you make anywhere in the world for as long as you are ordinarily resident in the UK – i.e. spend more than three months there in any one year-or domiciled in the UK. If you go to live permanently in Bulgaria with no intention of returning, and inform the UK authorities, you can apply to no longer be considered domiciled, though changing your domicile is very difficult.

• You will continue to be liable for UK inheritance tax on all of your assets located anywhere in the world for as long as you remain domiciled in the UK. This will be subject to double taxation relief. Other, more complex rules also apply in certain circumstances.

• You will always pay UK income tax (Schedule A) on income arising from land and buildings sited in the UK – wherever your domicile, residence or ordinary residence.

• You will pay UK income tax (Schedule D) on the following basis:

• Income from ‘self-employed’ work carried out in the UK (Cases I and II) -normally taxed in the UK if income arises in the UK.

• Income from interest, annuities or other annual payments from the UK (Case III) – normally taxed in the UK if income arises in the UK and you are ordinarily resident in the UK.

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• Income from investments and businesses outside the UK (Cases IV and V) – normally only taxed in the UK if you are UK domiciled and resident or ordinarily resident in the UK.

• Income from government pensions (fire, police, army, civil servant, etc.) – in all cases taxed in the UK.

• Sundry profits not otherwise taxable (Case VI) arising out of land or building in the UK – always taxed in the UK.

• You will pay income tax on any income earned from salaried employment in the UK (Schedule E) only on any earnings from duties performed in the UK unless you are resident and ordinarily resident in the UK – in which case you will usually pay tax in the UK on your worldwide earnings.

green hills of Bulgaria

If you are only buying a holiday home and will remain primarily resident in the UK, your tax position in the UK will not change very much. You will have to declare any income you make from your Bulgarian property as part of your UK tax declaration. The calculation of tax due on that income will be made in accordance with UK rules, which will result in a different taxable sum from that used by the Bulgarian authorities.

Since your property is located in Bulgaria.you will also have to pay taxes to the Bulgarian tax authorities. The taxes you will have to pay are discussed below. The UK Inland Revenue will give you full credit for the taxes already paid in Bulgaria. On the disposal of the property, you must disclose the profit made to the Inland Revenue, which again will give full credit for Bulgarian tax paid. Similarly, on your death, your assets in Bulgaria must be disclosed on the UK probate tax declaration but, once again, you will be given full credit for sums paid in Bulgaria.

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