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Removing Confusion on Spain and UK Tax Situation Especially Pensions

By Barry Davys - Topics: Moving to Spain, Pensions in Spain, Spain, Tax in Spain, UK Pensions
This article is published on: 23rd May 2022

It is clear from calls and messages to me from people seeking advice there is much confusion regarding taxation when we live in Spain and have income or capital gains in the UK. Sometimes, these calls happen when people have received a letter from the Agencia Tributaria (Hacienda).

My wish is to clarify the situation so that there are no back taxes, fines nor interest to pay in Spain.

This framework will clarify the position and I include specifics regarding pensions. Tax can be, well taxing, so this framework is to help with understanding the overall situation, not to provide specific advice for your situation.

Who’s this for?
This article is for all British people who live in Spain.

Overview
A framework to help explain how do we pay tax on pensions from the UK when living in Spain?

Why to read this article?
This article is written in response to a very sad situation where a pensioner here has been hit by fines, back tax and interest from four years ago because of a mis-understanding on how to organise his tax on his UK pension. It is likely that further fines will follow for other years. The total amount of fines and interest could amount to €21,000

Your commitment

Taking the time to read the article and requesting an initial telephone or Zoom meeting below, if you want help for your specific situation.

Your Tax Framework

Top of the framework is to understand that when we have taxable events in more than one country, the country of our residency is the “controlling tax authority”. They have the final say on what tax must be paid.

If you live in Spain more than 183 days in a calendar year your controlling tax authority is Spain. It does not matter if you also pay tax in the UK.

How this works is as follows:

  • Declare your worldwide gross income and capital gains on our La Renta (M100) Remember it is a self assessment form and so it is our responsibility to do so
  • At the end of the La Renta form is a box for entering tax paid in a country with a double taxation agreement with Spain. Put the tax paid in this box or insist your gestor does so. Even post Brexit the double taxation agreement is still in force
  • UK pensions gross income all have to be reported in Spain

If you live outside the UK and provide a certificate of tax residency in Spain you can claim dividends, bank interest and even private pensions without paying UK tax (because you will pay tax in Spain).

Pensions, however, are a great source of confusion. The UK retains the right to tax state pensions, military pensions, civil service pensions and a number of others. Previously these did not have to be reported in Spain. They do now!

Tips on pension tax

  • On private pensions and most company pensions ask the provider to pay you gross
  • If you have a UK pension where it is automatically taxed or is a state pension, record all tax paid in the UK and get proof of payment from the pension provider
  • Report the gross figures in Spain
  • Your state pension is paid weekly, not 12 monthly so remember to include all payments in the calendar year
  • Ensure that any tax paid is listed in the La Renta box for countries with double taxation agreements. Result – no double taxation
  • If the tax paid is missed off this box, try to make a Refund of Tax using UK HMRC form R43 and or form R40. It may be possible depending on your circumstances
  • One word of warning. Do not use companies offering to reclaim your tax for you. They are expensive, some may be improper and you can easily send the form yourself

In my profession as a financial adviser for international people living in Spain I have a clear understanding of tax rules and recommend that you employ a good local tax adviser. This article is not tax advice as it may not reflect your personal circumstances. It is merely a framework to help with your understanding. I hope this article provides more clarity on the issue and helps when you do go to a tax adviser.

Article by Barry Davys

If you would like to have an initial meeting and you live in Barcelona or the Costa Brava it can be either a complimentary face to face Zoom call or an in person meeting. To book a Zoom call please choose a time which is convenient for you here. If you prefer a time to visit Barry in his office in central Barcelona contact Barry on barry.davys@spectrum-ifa.com or whatsapp +34 645 257 525.

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