Changing Tax Residency from the UK to Andorra: Legal Criteria and Conflicts

Tax residency is a key concept in international estate and tax planning. It determines where an individual is liable to pay tax on their worldwide income and assets. This becomes particularly relevant in jurisdictions such as Andorra and the United Kingdom, where residency criteria share some similarities but also present notable legal and practical differences.

This article provides an in-depth analysis of the criteria for tax residency in both countries, the evidence required to support a change of residence, and the resolution mechanisms applicable in the absence of a bilateral tax treaty.

Tax Residency Criteria in Andorra
Under Andorran tax law, an individual is considered a tax resident if any of the following conditions are met:

• Physical presence in Andorra for more than 183 days in a calendar year. Occasional absences do not interrupt the count unless the individual can prove tax residency in another country.

• Centre of economic interests: the principal base of professional, business, or investment activities is located in Andorra, either directly or indirectly.

• Presumption based on family ties: if the non-legally separated spouse and/or minor children reside in Andorra, tax residency is presumed unless proven otherwise.

In practice, active administrative residency—based on the 183-day rule—is considered a strong presumption of Andorran tax residency. However, the free movement between the UK and Andorra, and the absence of border controls due to Andorra’s unique geographical position, complicates the assessment of actual presence.

The centre of economic interests is particularly nuanced and can include factors such as:

• Where income is effectively generated.

• Location of the paying entity or client base.

• Place of management of economic activities.

• Ownership or usage of significant assets.

Both Andorran and UK authorities may scrutinize whether artificial structures (e.g., holding companies, nominee agreements) have been used to mask true economic ties with the country of origin.

Tax Residency in the United Kingdom
The Statutory Residence Test (SRT) governs UK tax residency since 2013. It uses a three-tiered approach:

1. Automatic Overseas Tests: e.g., if the individual spends fewer than 16 days in the UK (or 46 days if non-resident for the previous three tax years).

2. Automatic UK Tests: e.g., spending 183 days or more in the UK.

3. Sufficient Ties Test: based on the number of “connecting factors” (e.g., family, available accommodation, work, time spent in previous years).

Failure to pass any of the overseas tests or to sever sufficient ties may result in the HMRC continuing to treat the individual as UK tax resident, even if they have registered as a resident abroad.

Importantly, domicile rules remain relevant in the UK for certain taxes, including Inheritance Tax (IHT), which can still apply for 15 years after leaving the country if the individual is deemed UK-domiciled.

No Double Taxation Treaty: Legal Implications
As of today, Andorra and the United Kingdom do not have a Double Taxation Agreement (DTA) in force. This absence introduces several complications:

• There is no tiebreaker mechanism in the event of a dual-residency claim.

• The lack of a foreign tax credit mechanism increases the risk of double taxation.

• There is no mutual recognition of residency certificates, increasing the potential for dispute.

Therefore, individuals must rely solely on domestic tax law in both jurisdictions and should expect a more aggressive posture from HMRC in cases where significant UK connections remain.

Family and Personal Ties: The Critical Variable
In the absence of a DTA, UK authorities may place significant weight on personal and familial ties to the UK. Factors considered include:

• Presence of spouse and/or minor children in the UK.

• Ongoing access to a UK home (even if not occupied year-round).

• Continued social, professional, or economic links.

Thus, a British individual relocating to Andorra, yet retaining substantial family or residential ties in the UK, may continue to be treated as UK tax resident under UK law, regardless of any Andorran residency certificate.

Mitigating Risk and Demonstrating Effective Relocation
To successfully establish tax residency in Andorra and avoid conflict with HMRC, the following best practices are recommended:

• Document 183+ days of physical presence in Andorra (passport stamps, travel logs, leases).

• Sever economic links with the UK where feasible (employment contracts, directorships, client bases).

• Relocate the centre of decision-making and management of economic activities to Andorra.

• Limit or eliminate “sufficient ties” under the SRT.

• In the case of passive residency by investment, ensure compliance with AFA requirements and maintain a consistent presence (minimum 90 days per year).

Additionally, the absence of a DTA heightens the importance of professional advice in structuring the relocation, especially in areas such as capital gains, investment income, exit tax implications, and the treatment of pension assets.

Conclusion
The relocation of tax residency from the UK to Andorra is legally feasible, but it requires rigorous planning, especially in the absence of a treaty framework. While Andorra offers significant fiscal advantages—particularly for those obtaining residency through foreign investment—a mismanaged transition could trigger dual taxation, penalties, or residency challenges from HMRC.

A well-structured strategy that meets both Andorran criteria and avoids the triggers of UK residency law is essential. In this context, the support of specialists in international tax law and cross-border relocation becomes not just valuable but indispensable.

Interested in moving your tax residence to Andorra?
At Andorra Gestoria, we provide bespoke legal and tax solutions for UK nationals seeking a compliant and efficient transition. Our team ensures you meet all statutory requirements and offers full legal support throughout the relocation process.

Contact us today for a confidential consultation.