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Double Taxation Treaty

Posted: Wed Nov 29, 2023 6:51pm
17 replies6 members subscribed
Luisarose

Posts: 8

Location: Alicante City

Joined: 5 Dec 2022

I have worked in Britain for a number of years, but not having fully researched the pros and cons of moving to Spain, it is now a bit of shock to learn that our private pensions will be taxed in both countries, we may be worse off under the Double Taxation Treaty?  I'm completely lost as to how works in practical terms.

Would anyone who has experience or knowledge of the above please very kindly tell me how it works.

Confused in Alicante

marcliff

Posted: Wed Nov 29, 2023 7:04pm

marcliff

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Posted: Wed Nov 29, 2023 7:04pm

They won't be taxed in both countries. The dual tax agreement means that you can't be taxed twice on the same income.

If you are taking up residency in Spain, you will pay tax in Spain on all your worldwide income but won't pay it in your home country. The only exception is government or crown pensions which are taxed in your own country but not in Spain although they are taking into account to set the level at which tax is levied.

If you get non government pensions from UK companies you must inform the HMRC that you are going to be resident in a country with a dual tax agreement and they will stop levying tax in UK. 

This does have a crossover point, unfortunately, and you will pay tax in both countries until you complete a Spanish tax return. You then send the Form Spain Individual (FD9) along with the Spanish declaration of fiscal residence in Spain and the HMRC will refund the tax you paid in UK since becoming resident.

This is the Spain Individual Form https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1121255/Double_Taxation_Spain_Indiviual.pdf

But you cannot submit it without a Spanish declaration of fiscal residence which you can get once you have completed your first tax form in Spain. 

Darro

Posted: Thu Nov 30, 2023 9:08am

Darro

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Posted: Thu Nov 30, 2023 9:08am

Understand that Dual Tax Treaties exist to prevent double taxation of the same income, they do not mean that you will pay the same, or less, or more tax in one jurisdiction that you do in another, that is down to the tax scheme in the second country.

Generally Spain being a relatively low income country the tax burden on higher earning individuals, such as many from UK, can be significantly higher.

The Crown Pension exemption deal might sound sweet and simple but in practice it can can actually increase your overall liability in Spain. This is because the Spanish taxman takes the gross sum into account when calculating liability then deducts any tax already paid in UK. Calculating gross like that can push you into a higher tax band resulting in what amounts to a second bite into income from that source.

A simple hypothetical illustration:

You have a single income in Spain which is a UK Crown pension with a gross of £15,000 on which you pay £1000 tax in UK.

In Spain, because of different allowances and tax bands, that same £15,000 could give rise to a tax liability of over £1000, for argument let's say £1100, so even deducting the £1000 already paid you will have to pay and additional £100.

marcliff

Posted: Thu Nov 30, 2023 10:12am

marcliff

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Posted: Thu Nov 30, 2023 10:12am

Darro wrote on Thu Nov 30, 2023 9:08am:

Understand that Dual Tax Treaties exist to prevent double taxation of the same income, they do not mean that you will pay the same, or less, or more tax in one jurisdiction that you do in another, that is down to the tax scheme in the second country.

Generally Spain being a relatively low income country the tax burden on higher earning individuals, such as many from UK, can be significantly higher....

...

The Crown Pension exemption deal might sound sweet and simple but in practice it can can actually increase your overall liability in Spain. This is because the Spanish taxman takes the gross sum into account when calculating liability then deducts any tax already paid in UK. Calculating gross like that can push you into a higher tax band resulting in what amounts to a second bite into income from that source.

A simple hypothetical illustration:

You have a single income in Spain which is a UK Crown pension with a gross of £15,000 on which you pay £1000 tax in UK.

In Spain, because of different allowances and tax bands, that same £15,000 could give rise to a tax liability of over £1000, for argument let's say £1100, so even deducting the £1000 already paid you will have to pay and additional £100.

I think you've got that last bit wrong. They don't tax your crown pension, merely use it to see which level of tax you are on.

My crown pension, when it was the only one, was taxed in UK but totally ignored in Spain. However, when other pensions kicked in, they added the crown pension to my new pensions to put me on a higher tax bracket but did not tax the crown pension at all. Just the fact that it used up all my allowances in Spain so I paid tax on all my next pension at 24% instead of 19%. But never touched my crown pension even though it was above the Spanish allowance.

If they taxed the excess crown pension that would not be in accordance with the dual tax agreement which says you don't pay tax twice on the same income. 

Luisarose

Posted: Thu Nov 30, 2023 6:36pm

Luisarose

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Posts: 8

Location: Alicante City

Joined: 5 Dec 2022

Posted: Thu Nov 30, 2023 6:36pm

marcliff wrote on Wed Nov 29, 2023 7:04pm:

They won't be taxed in both countries. The dual tax agreement means that you can't be taxed twice on the same income.

If you are taking up residency in Spain, you will pay tax in Spain on all your worldwide income but won't pay it in your home country. The only exception is government or crown pensions which are taxed in your own country but not in Spain although they are taking into account to set the level at ...

...which tax is levied.

If you get non government pensions from UK companies you must inform the HMRC that you are going to be resident in a country with a dual tax agreement and they will stop levying tax in UK. 

This does have a crossover point, unfortunately, and you will pay tax in both countries until you complete a Spanish tax return. You then send the Form Spain Individual (FD9) along with the Spanish declaration of fiscal residence in Spain and the HMRC will refund the tax you paid in UK since becoming resident.

This is the Spain Individual Form https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1121255/Double_Taxation_Spain_Indiviual.pdf

But you cannot submit it without a Spanish declaration of fiscal residence which you can get once you have completed your first tax form in Spain. 

This is absolutely helpful, and I am very grateful for the information.  Thank you very very much.

Just one more thing, if there is another source of income, which is taxed in UK would it be possible to omit it from the Spanish Tax Form?

Kind regards

Luisarose

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marcliff

Posted: Thu Nov 30, 2023 6:50pm

marcliff

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Posted: Thu Nov 30, 2023 6:50pm

You must declare all world wide income on your Spanish tax return. As said, only government or crown pensions which include local authority pensions, will be taxed in UK. All other pensions will be taxed in Spain and you have to complete the FD9 to HMRC to get it paid with no tax. 

Even if you pay tax in UK on one of the above pensions, it still has to be declared in Spain. Note, as already pointed out, the tax authorities in each country share information. 

This link shows which pensions are classed as government pensions and which ones are not. 

https://www.gov.uk/hmrc-internal-manuals/international-manual/intm343040

Note that NHS pensions are not classed as government pensions unless paid by a local authority. Those paid by NHSBA are not.

NickB

Posted: Fri Dec 1, 2023 6:21pm

NickB

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Posted: Fri Dec 1, 2023 6:21pm

Good luck with getting your owed tax back from the uk under the double taxation treaty any time soon. It took us 2 years by with time we were owed a considerable sum. This is despite putting a complaint to the HMRC due to how long it was taking.

marcliff

Posted: Fri Dec 1, 2023 6:27pm

marcliff

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Posted: Fri Dec 1, 2023 6:27pm

NickB wrote on Fri Dec 1, 2023 6:21pm:

Good luck with getting your owed tax back from the uk under the double taxation treaty any time soon. It took us 2 years by with time we were owed a considerable sum. This is despite putting a complaint to the HMRC due to how long it was taking.

I can just about beat that. 3 and a half years. Kept sending me more forms to fill in even though I'd already informed.

Then they said the Spanish tax people were wrong and my NHS pension was a government pension taxable in UK. I had to send them a link from their own handbook to say that it wasn't.

Finally admitted their mistake and sent me another form to complete. Then, even though I'd sent them the Spanish tax confirmation of fiscal residence they said they needed that form. Then, ta-da, after of 3 and half years they refunded me over 8 thousand quid as it had been adding up for 4 tax years.

They get there........eventually.

John123456

Posted: Sat Dec 2, 2023 8:29am

John123456

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Posted: Sat Dec 2, 2023 8:29am

This link contains the actual treaty between the UK and Spain:

https://www.gov.uk/government/publications/spain-tax-treaties

ldp

Posted: Sat Dec 2, 2023 9:16am

ldp

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Posted: Sat Dec 2, 2023 9:16am

marcliff wrote on Wed Nov 29, 2023 7:04pm:

They won't be taxed in both countries. The dual tax agreement means that you can't be taxed twice on the same income.

If you are taking up residency in Spain, you will pay tax in Spain on all your worldwide income but won't pay it in your home country. The only exception is government or crown pensions which are taxed in your own country but not in Spain although they are taking into account to set the level at ...

...which tax is levied.

If you get non government pensions from UK companies you must inform the HMRC that you are going to be resident in a country with a dual tax agreement and they will stop levying tax in UK. 

This does have a crossover point, unfortunately, and you will pay tax in both countries until you complete a Spanish tax return. You then send the Form Spain Individual (FD9) along with the Spanish declaration of fiscal residence in Spain and the HMRC will refund the tax you paid in UK since becoming resident.

This is the Spain Individual Form https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1121255/Double_Taxation_Spain_Indiviual.pdf

But you cannot submit it without a Spanish declaration of fiscal residence which you can get once you have completed your first tax form in Spain. 

Just to add, we got our certificate of fiscal residency in Spain before first tax declaration. Our accountant used proof of consistent spending etc so we avoided paying tax in both countries and then waiting for a refund 

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