Tax on pensions?

Excellent summary, Kim, but I have to disagree on one point. The modelo 720 return is informative only, and doesn't affect the rate at which modelo D-100 tax is calculated.

However, if someone has income which can only be taxed in the UK, like a crown pension, then that income still has to be declared here on a separate section of the D-100, and can affect the rate at which other income is taxed.

The bottom line for Nick, as you've said, is to take a pension lump sum whilst still tax resident in the UK.

Thanks both, most helpful. It is as I suspected that my tax advisor was misinformed.

Sorry one other question; if we take the pension lump sum whilst still in the UK or very shortly after moving to Spain, but dont apply for residentia until we absolutely have to, at what point are you taxed under the Spanish rules? Is the Spanish tax implications from the point you become resident or is it for the whole tax year?

Getting a residency certificate doesn't have anything to do with tax liability. 

If you live in Spain for 183 days or more in a calendar year, then you are a fiscal resident for that year.

Be aware that the Spanish tax authorities have access to the Inland Revenue database and so can check whatever information you do or do not report.

We have just had out 1st tax bill prepared by local Spainish company. We got a shock that we had to pay 1200 euros. Based on my husbands state pension and a small private pension and 600 euros i earned in Spain on a contract. We have the monies taken out of our bank account in 2 instalments. We have to pay the full amount to Spain and reclaim the tax already paid on the UK. Hope this information helps...and has this been anyone elses experience ?

There's a specific place in a tax return for claiming offset of tax paid in the UK. so the 'expert' should have done this for you.

Agencia Tributaria would be within their rights to insist you pay full tax here and claim tax paid in the UK back from HMRC, but so far I've never heard of them invoking this.

I've recently done a tax return for a friend, and the system accepted the offset I claimed.

I dont think that advice is correct. I have just taken £95000 from my pension pot and Im going to gert a 40000 euro tax bill next year.I had already taken the 25% whilst in the UK.

My husband paid tax on his private pension monthly in the UK. When we had our 1st tax bill in Spain we had to pay the full tax due in Spain..which included the tax on the private pension already paid in the UK. We had to pay the 1st instalment of Spanish tax before we could get our tax refunded from the UK. We had to get a stamped certificate from our Spanish accountant to enable us to do this. This was only for the 1st time...we now only pay tax in Spain.

My advice was correct in the context of the comment I answered.

You can only claim an offset of tax paid in the UK. If the tax due in Spain is more than that paid in the UK, then you have to pay the difference which, in the case of no tax paid in the UK, means paying the full amount here.

I did point out in my guides to tax that taking a lump sum in the UK whilst fiscally resident here means that the full amount is taxable as income.

There's also some taxable income which, if earned in the UK, has to be taxed and paid in the UK and then offset against the tax liability in Spain.

A friend of mine has recently become tax resident in Spain and was told by Abaco Advisers that the income from her UK rental property had to be taxed in Spain.  She queried this with me because she knew my situation was the same, but that my rental income is taxed in the UK.  I sent her the relevant links to HMRC's website to show that a P85 application (to remove yourself from the UK tax system) will be rejected by HMRC for anyone declaring income via self-assessment (this does not apply to State pensions) and Abaco advised her yesterday that her rental income will, in fact, be taxed in the UK and offset in Spain.

So, not only can tax advisors in Spain be wrong, two advisors in the same company can have different views - thankfully, my English tax advisor in Spain, also with Abaco, appears to know the UK's rules.

What this also shows is how complex the respective tax systems are, especially when an individual's affairs straddle both countries.  If this is your situation, I'd recommend getting specialist advice in both countries.

Kind regards, 

Kim