Taxes for non-working residents

Hi Juliette, does it have to be a full year re drawdown as we’re hoping to move out this year?

Thank you.

Hi Ray, thanks for your reply. Do you know what exactly we can expect to get taxed on please?

Hi Mags,

Are your pensions private, self-invested pensions, or are the funds from company pensions?  If the latter, you don't have to declare them on the Modelo 720.  Any draw downs you take from them will have to be declared as income on the Modelo 100 annual tax return.

As your rental income is generated in the UK, it  will be taxed there.  You still have to declare it in Spain, but under the terms of the Dual Taxation Agreement, the tax you pay in the UK will be offset against income tax due in Spain.  Tax allowances are more generous in the UK, but you would need to apply to be a Non-resident Landlord and submit an annual self-assessment tax return to HMRC.  Alternatively, you could opt out of the UK tax system - here's a link to Jim's Guide on it:

https://www.costablancaforum.com/area/almorad%C3%AD-spain-11/taxes-suma-nie-tax-advice-in-almorad%C3%AD-25/jims-guide-residents-income-tax-uk-hmrc-de-registration-giving-the-inland-revenue-the-elbow-35441/ 

Depending on whether the initial pension is your income or your husband's, it may be tax efficient to change ownership of your rental property from joint names to whichever one of you has the lower income.  My husband's military pension exceeds the UK personal allowance (as a "Crown" pension, he can not choose to opt out of the UK tax system), so we bought our rental property in my name only.  I have 2 private (company) pensions and we have another 8 and 4 years respectively before we draw State pension.  Like you, I don't plan to touch my private pensions for the foreseeable future - at least until we know for sure that BoJo won't renege on State pension uprating for UK citizens living overseas!

There are other Jim's Guides on Spanish income tax that you may find useful at this link, under the section,  "Residents income tax in Spain::

Jim's guides - your complete guide to Spain

Kind regards,

Kim

Hi Ray,

Yes, you can do this, but presumably you opted out of the UK tax system to do so?  Otherwise  you would have to be registered as a Non-resident Landlord and continue submitting self assessment tax returns in the UK.

Kind regards, 

Kim

Thanks for the clarification, Ray.  As my post said, you are taxed on UK income in the UK, unless you opt out of the UK tax system.  This is an important distinction, as some people, like my husband and others who receive Crown pensions, are not able to opt out of the UK tax system.

Kind regards,

Kim

But what if the poster doesn't move and become resident until the second half of 2020, say, September. I thought that would mean they wouldn't be treated as tax resident in Spain until 2021, filling out first tax return in 2022. In that case surely they can draw down etc under UK tax rules in 2020? They just need to make sure they don't move residence  until the second half of this year?

Hi Kim , can you choose to remain in the UK tax system if this is where your state/ private pensions are paid into your UK bank account, but you are registered as a resident of Spain ? It’s very confusing!

Thank you.

No, you can't choose...once you meet the rules for tax residency in Spain ( generally speaking if you spend more than 183 days in a tax year or have your economic or family interests in Spain) you are Spanish tax resident. Spanish tax year is January to December. Hence if you don't move until later in the year e.g. August or September you don't spend more than 183 days in that year and you don't become tax resident until January the following year. You need to declare all your income  for tax but you'll get credit for tax already paid in the UK because there's a double taxation treaty.

Tax residency is separate from applying for the green residency card as you're supposed to do that to spend more than 90 days in Spain .So theoretically you could hold a green residency card but not yet be tax resident. Obviously not indefinitely of course...

Hi Mags,

Sorry for slow response, as I've been out most of the day and just catching up with the forum.  

Sarah Green has answered your questions very well.  We moved to Spain in 2016, but because we were here less than 183 days in that year, we were taxed as Non-resident in 2016 and then as Resident from 2017 onwards.

As Sarah says, you can't choose where you are domiciled for tax purposes.  Whilst HMRC's Statutory Residence Test refers to familial links, it initially states that, "If you’ve been in the UK for 183 or more days you’ll be a UK resident. There is no need to consider any other tests."  Conversely, if you spend 183 days (6 months + 1 day) in Spain in the year, you are tax resident by default in Spain, even if you haven't obtained the green residency certificate.  So, I agree with Sarah, make sure you don't exceed 182 days in Spain this year and aim to get your residency in the second half of the Spanish tax year, i.e. between July and December.

Kind regards, 

Kim