Civil Service Pensions

Herefordjack wrote on Mon May 4, 2020 12:12pm:

Your gestor is wrong (strictly speaking - more in a moment!), you are correct to think it needs to go on your Spanish tax return. The gross amount of your crown pension in euros should be entered in box 0525.

However, there is an anomaly at work in the current tax declaration. I have covered it in some detail in my reply to the 'Jim's Guide' post regarding filling in your 2019 tax return, which I suggest you have a look at....

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In short, the crown pension ought to be treated by a process known as 'exemption through progression', which means that though it is not directly taxed in Spain, it is supposed to be taken into account by the Spanish tax authorities to decide which tax band(s) the rest of your income falls into. Having done my tax return online, this is not what is happening in practice. Instead, they are deducting the crown pension from the personal tax allowance before it is applied. In effect, you are being taxed on it again! This may be what your gestor is referring to.

I have discussed this privately with Jim, and i think he won't mind me saying he agrees with my conclusion. The online evaluation is not working as it should. He suggested I take it up with the tax authorities or whatever ombudsman exists to police the double tax agreement, but I'm not brave enough to do that! Do you want to do it????

Villas wrote on Mon May 4, 2020 12:19pm:

Herefordjack. Basically saying much the same:

Spanish taxation rules and Pensions Double taxation

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The UK and Spain have had a Double Taxation Convention for some time, but the new treaty only came into force in June, with further rules covering income tax and other taxes kicking in on January 1 and April 6, 2015.

Government service pensions paid to retired members of the fire service, police, civil servants, armed forces and local authorities are exempt from Spanish tax. Under the new treaty the amount of the pension is still exempt but must be included when calculating how much tax is due in Spain. This could have the effect of pushing any other income – perhaps from investments and rent – into a higher tax bracket meaning you’d have to pay more tax in Spain.

Disclosure rules

The new Spanish ‘disclosure’ rules mean that Spanish residents and expats living in Spain will have to declare all relevant overseas assets worth more than €50,000. This includes bank accounts, property and life assurance policies.

The Gov.uk website includes the following:

Taxation

The tax system in Spain operates on the same basis as the tax system in the UK. In the UK, those who are resident for tax purposes are taxed on their worldwide income, regardless of the country in which it arises. Those who are not resident for tax purposes are taxed only on the income arising in the UK. A Double Taxation Convention between Spain and the UK operates to prevent income being taxed in both countries when a resident of one country has income arising from a source in the other country. The full text of the convention can be found on the HMRC website.

In the case of pensions for past Government service, double taxation is avoided by allocating an exclusive right to tax to the paying state. This means that in all cases where a UK Government Service pension is paid to a Spanish resident it will be taxable only in the UK, apart from where, exceptionally, it is paid to a Spanish national. HMRC maintain a list of the UK pensions that are classified as government pensions for the purposes of the Double Taxation Convention.

In a change from previous practice, all income received by a resident in Spain is now taken into account to calculate the applicable rate of income tax in Spain – regardless of whether the income itself is taxed in Spain. So an exempt UK Government pension will be taken into account for the purposes of determining the tax rate which applies to other income which is taxable in Spain. This is common practice in other states around the world.

If, as a resident of Spain, you have concerns over whether a UK Government service pension is going to be taxed in Spain in a manner not in accordance with the Double Taxation Convention, you should address these to the Spanish tax authorities.

In accordance with Spanish and international law, all residents in Spain (nationals and non-nationals alike) are required to declare assets or groups of assets held outside Spain. Assets may include bank accounts, securities, rights, insurance, annuities, property, etc. and the declaration is a separate exercise to the annual tax return.

To reinforce this obligation, and as part of the Spanish Government’s anti-fraud law, the Government requires all residents in Spain to file an annual informative declaration of assets held overseas by 31 March each year. Severe penalties for incorrect, incomplete or late reporting can be incurred and the legislation also means that criminal charges can be brought in the case of non-compliance.

Please see the links below:

https://www.gov.uk/guidance/living-in-spain#taxation

http://www.telegraph.co.uk/finance/personalfinance/expat-money/10967870/Dont-get-caught-out-by-new-Spain-tax-laws.html

http://www.expertsforexpats.com/expat-tax/expat-tax-advice/tax-in-spain-for-expats/

V

Villas wrote on Mon May 4, 2020 12:19pm:

Herefordjack. Basically saying much the same:

Spanish taxation rules and Pensions Double taxation

Read more...

The UK and Spain have had a Double Taxation Convention for some time, but the new treaty only came into force in June, with further rules covering income tax and other taxes kicking in on January 1 and April 6, 2015.

Government service pensions paid to retired members of the fire service, police, civil servants, armed forces and local authorities are exempt from Spanish tax. Under the new treaty the amount of the pension is still exempt but must be included when calculating how much tax is due in Spain. This could have the effect of pushing any other income – perhaps from investments and rent – into a higher tax bracket meaning you’d have to pay more tax in Spain.

Disclosure rules

The new Spanish ‘disclosure’ rules mean that Spanish residents and expats living in Spain will have to declare all relevant overseas assets worth more than €50,000. This includes bank accounts, property and life assurance policies.

The Gov.uk website includes the following:

Taxation

The tax system in Spain operates on the same basis as the tax system in the UK. In the UK, those who are resident for tax purposes are taxed on their worldwide income, regardless of the country in which it arises. Those who are not resident for tax purposes are taxed only on the income arising in the UK. A Double Taxation Convention between Spain and the UK operates to prevent income being taxed in both countries when a resident of one country has income arising from a source in the other country. The full text of the convention can be found on the HMRC website.

In the case of pensions for past Government service, double taxation is avoided by allocating an exclusive right to tax to the paying state. This means that in all cases where a UK Government Service pension is paid to a Spanish resident it will be taxable only in the UK, apart from where, exceptionally, it is paid to a Spanish national. HMRC maintain a list of the UK pensions that are classified as government pensions for the purposes of the Double Taxation Convention.

In a change from previous practice, all income received by a resident in Spain is now taken into account to calculate the applicable rate of income tax in Spain – regardless of whether the income itself is taxed in Spain. So an exempt UK Government pension will be taken into account for the purposes of determining the tax rate which applies to other income which is taxable in Spain. This is common practice in other states around the world.

If, as a resident of Spain, you have concerns over whether a UK Government service pension is going to be taxed in Spain in a manner not in accordance with the Double Taxation Convention, you should address these to the Spanish tax authorities.

In accordance with Spanish and international law, all residents in Spain (nationals and non-nationals alike) are required to declare assets or groups of assets held outside Spain. Assets may include bank accounts, securities, rights, insurance, annuities, property, etc. and the declaration is a separate exercise to the annual tax return.

To reinforce this obligation, and as part of the Spanish Government’s anti-fraud law, the Government requires all residents in Spain to file an annual informative declaration of assets held overseas by 31 March each year. Severe penalties for incorrect, incomplete or late reporting can be incurred and the legislation also means that criminal charges can be brought in the case of non-compliance.

Please see the links below:

https://www.gov.uk/guidance/living-in-spain#taxation

http://www.telegraph.co.uk/finance/personalfinance/expat-money/10967870/Dont-get-caught-out-by-new-Spain-tax-laws.html

http://www.expertsforexpats.com/expat-tax/expat-tax-advice/tax-in-spain-for-expats/

V

Herefordjack wrote on Mon May 4, 2020 12:29pm:

Villas, the nub of the matter is your paragraph:

If, as a resident of Spain, you have concerns over whether a UK Government service pension is going to be taxed in Spain in a manner not in accordance with the Double Taxation Convention, you should address these to the Spanish tax authorities.

Read more...

I wonder if the OP would be in a position to get her gestor to take the matter up with the Spanish tax authorities? Or, as presumably they are an experienced person in tax matters, they have any comment on the fact that the online tax evaluation is not set up to do the calculation correctly, as laid down in the double tax agreement?

Comments, please, Claretta.