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At what point does my Tax liability begin

Posted: Sat Jul 4, 2020 8:44pm
12 replies511 views6 members subscribed
Johnalpho

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Location: Javea / Xàbia

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Hello,

I am a UK pensioner and UK tax is deducted from my pensions. (standard, non-government pensions)

I am currently in Spain, and in the process of applying for residency.

My question is..... Does my Spanish tax bill liability begin from the day I acquire my residency?, or from the date my Padron was issued?......or neither of the above?  (I know that the tax year is Jan to Dec)

Put another way.... say I acquire residency in September, 2020, will my 1st years Spanish tax bill be worked out from Sep to Jan, 2021?

Hope this makes sense

Regards

Lancelot

Posted: Sat Jul 4, 2020 10:05pm

Lancelot

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Posted: Sat Jul 4, 2020 10:05pm

Do you know how many days you've spent in Spain this year (from Jan 1st 2020) and if the total will be over 183 days by the 31st December?

The advice on here and other web sources is that if you spend less than 183 days in Spain in their tax year, Jan 1st to Dec 31st, then you are unlikely to be asked to contribute tax for that year.

I say unlikely because my tax advisors in Spain tell me that the Spanish tax authority did try and claim CGT from one of their clients who moved over in the second part of the year. The claim was ultimately rejected.

Kelvin1960

Posted: Sun Jul 5, 2020 1:55am

Kelvin1960

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Posted: Sun Jul 5, 2020 1:55am

My wife and I were granted Residency in the 2nd half of 2018. Our income tax for Jan-Dec 2019 was collected in part (around 60%) last week, and the remaining 40% will be collected in November. We continue to pay income tax in the UK. We have not yet filled in the forms to reclaim the equivalent tax from the UK; that is the next step. So ... we had (and still have) a significant tax flow issue to manage.

Assuming your process runs like ours (and is not Brexit-impacted) ...

- if you are granted Residency in the second half of this year

- you will submit a Modelo 720 (a statement of your assets) in February 2022

- you will pay income tax in Spain for Jan-Dec 2021 in June 2022 (approx 60%) and November 2022 (approx 40%)

- you will continue paying income tax PAYE in the UK until late 2022, at which point you will reclaim the equivalent tax from the UK (we haven't done that bit yet, so can't advise on that detail)

- you will have a cash flow issue to manage

There is much debate about the Padron date. We went on the padron in 2017, but this was not taken into account with regard to our income tax.

Movingon

Posted: Sun Jul 5, 2020 8:41am

Movingon

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Posted: Sun Jul 5, 2020 8:41am

"We went on the padron in 2017, but this was not taken into account with regard to our income tax."

Well not yet anyway!

What many people seem to be blissfully unaware of is that signing on a padron is a de fact declaration that you live in Spain so technically that is the point from which you should work out when your Modelo 720 and first tax return are due.

Kelvin1960

Posted: Sun Jul 5, 2020 11:28am

Kelvin1960

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Posted: Sun Jul 5, 2020 11:28am

Movingon wrote on Sun Jul 5, 2020 8:41am:

"We went on the padron in 2017, but this was not taken into account with regard to our income tax."

Well not yet anyway!

What many people seem to be blissfully unaware of is that signing on a padron is a de fact declaration that you live in Spain so technically that is the point from which you should work out when your Modelo 720 and first tax return are due.

Yes, this is a debated area. 

We bought our Spanish home in 2017. We kept a home in the UK. We did not spend much time in Spain in 2017, so Residency was not an immediate issue. We decided to apply for Residency in 2018. 

But, in 2017, we wanted a car in Spain (a Spanish registered car). Our local gestor advised that, to have a car, we had to be on the padron. So we went on the padron.

We have 2 different British neighbours for whom the process was much the same, except that they were granted Residency in the first half of 2018 and became tax-liable earlier than us. They both went on the padron and bought cars in 2017. Neither of them have had padron-related tax issues (yet).

I don't fully understand the rules. I don't claim any expertise. I am reporting factual experience. 

But, if the notion is correct that tax-liability starts from the date of the padron, there must be many holiday-home owners with cars here who will have a dreadful shock when they retire and move here permanently. For this reason, I doubt the logic. 

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Herefordjack

Posted: Sun Jul 5, 2020 11:40am

Herefordjack

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Posted: Sun Jul 5, 2020 11:40am

Kelvin1960 wrote on Sun Jul 5, 2020 1:55am:

My wife and I were granted Residency in the 2nd half of 2018. Our income tax for Jan-Dec 2019 was collected in part (around 60%) last week, and the remaining 40% will be collected in November. We continue to pay income tax in the UK. We have not yet filled in the forms to reclaim the equivalent t...

...ax from the UK; that is the next step. So ... we had (and still have) a significant tax flow issue to manage.

Assuming your process runs like ours (and is not Brexit-impacted) ...

- if you are granted Residency in the second half of this year

- you will submit a Modelo 720 (a statement of your assets) in February 2022

- you will pay income tax in Spain for Jan-Dec 2021 in June 2022 (approx 60%) and November 2022 (approx 40%)

- you will continue paying income tax PAYE in the UK until late 2022, at which point you will reclaim the equivalent tax from the UK (we haven't done that bit yet, so can't advise on that detail)

- you will have a cash flow issue to manage

There is much debate about the Padron date. We went on the padron in 2017, but this was not taken into account with regard to our income tax.

I'd just like to point out that you only need to submit a Modelo 720 if you have over 50,000 euros worth of assets abroad (e.g. in the UK) in one or more of three asset classes - 1. bank and savings accounts, 2. property, 3. shares and other company assets. 

A pension does not count as an asset. You do not total up the three assets to arrive at the 50,000 euros, e.g. if you have 20,000 euros equivalent in a savings account and 35,000 euros worth of shares, no requirement to submit a Modelo 720.

Herefordjack

Posted: Sun Jul 5, 2020 3:10pm

Herefordjack

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Posted: Sun Jul 5, 2020 3:10pm

This post that was quoted has been deleted.

Hi Ray, that's not my understanding from reading up on it. As long as you are receiving income from a pension which is to support you during retirement, it is not taken into account. Were you not retired at the time, perhaps? Were you advised by a tax consultant? Was it some other kind of financial instrument which you categorised as 'pension' but the tax authorities didn't?

Not looking for an argument, just trying to understand!

jimtaylor

Posted: Sun Jul 5, 2020 4:46pm

jimtaylor

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Posted: Sun Jul 5, 2020 4:46pm

Your tax liability starts legally as soon as you take up residence in Spain. The problem is that as the movements of UK citizens are not monitored before the end of the transition period, the only date the tax authorities can go by is the date you register on the padrón.

Move here from July onward, and own a property, then you have to pay non-resident tax for this year. For next year you will have to pay resident tax.

All explained in my tax guides. Click Jim's Guides in the menu bar at the top of the page.

Kimmy11

Posted: Sun Jul 5, 2020 9:42pm

Kimmy11

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Posted: Sun Jul 5, 2020 9:42pm

This post that was quoted has been deleted.

Hi Ray,

A SIPP (self-invested private pension) has to be declared on the Modelo 720, but our tax advisors, Abaco, said that my company pension did not have to be declared, because my own contributions, matched by my employer, were invested in a company scheme (I was able to demonstrate an audit trail of the contributions).  Abaco told me that they don't have an equivalent of "company pensions" in Spain, so Agencia Tributaria doesn't know how to treat them.  Of course, as and when I decide to take income from them, I will have to declare that on the Modelo 100 tax return.

Kind regards,

Kim

Kimmy11

Posted: Sun Jul 5, 2020 9:46pm

Kimmy11

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Posted: Sun Jul 5, 2020 9:46pm

Kelvin1960 wrote on Sun Jul 5, 2020 11:28am:

Yes, this is a debated area. 

We bought our Spanish home in 2017. We kept a home in the UK. We did not spend much time in Spain in 2017, so Residency was not an immediate issue. We decided to apply for Residency in 2018. 

But, in 2017, we wanted a car in Spain (a Spanish registered car). Our local gestor advised that, to have a car, we had to be on the padron. So we went on the padron.

We have 2 different British neighbours for whom the process was much the same, except that they were granted Residency in the first half of 2018 and became tax-liable earlier than us. They both went on the padron and bought cars in 2017. Neither of them have had padron-related tax issues (yet).

I don't fully understand the rules. I don't claim any expertise. I am reporting factual experience. 

But, if the notion is correct that tax-liability starts from the date of the padron, there must be many holiday-home owners with cars here who will have a dreadful shock when they retire and move here permanently. For this reason, I doubt the logic. 

Hi Kelvin,

We also fell for the "you have to be on the Padron to buy a car" urban myth.  I would say that the disdain with which the salesman at the dealership chucked it back at me, suggests that he's seen a lot of unrequired Padron certificates!  ;o)

Kind regards,

Kim

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