Tax free lump sum

Hi,

As long as you take the lump sum whilst living in the UK, and you are a resident of the UK. You won’t be taxed in Spain. Once you become a resident In Spain then you will be taxed in the country you are a resident. Hope that helps. 

I think it depends what time of the year you become resident. If you move to Spain in the last 6 months of the year, as long as you are not here for 183 days or more, then you won't become liable for Spanish taxation until the following year from January 1st.

So, take the lump sum in January and move in March, you will be liable for Spanish taxation from January 1st that year. Take the lump sum whenever you want in the year but only become tax resident in Spain after July 2nd, you will only be liable for UK taxation that year.

That's how it worked for us anyway as we moved down 7th July.

Hi , 

Thanks for your replies . I think the best way forward is to take my pension in May 22 in the UK  and apply for residency in July 22 

Hi Gary,

It's also worth noting that UK tax-free ISAs aren't tax-free in Spain either.

Kind regards,

Kim

Thanks Kim , 

I was just wondering as it's a tax free payment in the uk and it would be kept in a UK bank account , surely it wouldn't be liable to be taxed in Spain due to the agreement between the uk and Spain 

As advised you are taxed in the country you are resident. Resident in Spain pay tax in Spain. 

Hi Gary,

Once you become tax resident in Spain, you have to declare your worldwide assets here, e.g. property, bank accounts, savings and investments.  There are a couple of exceptions to Spanish tax liability, i.e. Crown pensions (military, Civil Service, some NHS and some Teachers' pensions) and UK rental income, but they still have to be declared in Spain, even though they are taxed in the UK - these are examples of the UK/Spain Dual Taxation Agreement in action, but it does not apply to pension lump sums and ISAs where the UK tax-free status is not recognised in Spain.

Kind regards,

Kim

Hi Kim , 

I'm picking up a lot of useful information here thanks for all the advise it's all very welcome , but I still find it strange that if I have say £50,000 in my Barclay bank account in the uk , the Spanish can tax you on it ?

Hi Gary,

As I said, when you become tax resident in Spain, you have to declare your worldwide assets here.  A Spanish citizen, who is tax resident in the UK, has to declare their worldwide assets in the UK. (I wonder how many UK citizens, tax resident in the UK, know that they must declare ownership of their Spanish holiday home to HMRC?)  One of the provisions of the DTA ensures that you don't pay tax on the same income in both countries,  but you still have to comply with the tax regime of the country in which you're resident.

For example, the basic rate of income tax in Spain is 19%; in the UK, it's 20%.  My husband has a military (Crown) pension, on which he has to pay tax in the UK.  He also has to declare it in Spain, but he pays no tax on it here.  However, the value of it, added to his other worldwide assets, pushes him into the 24% tax band.  I would argue that he is, therefore, paying additional tax on the same income, but we understood the different tax laws before we moved to Spain and mitigated as much as we could before doing so.  You're very wise to check the rules before making the move and I'd recommend taking specialist professional advice to ensure you understand your own position.

Kind regards,

Kim