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Non Resident/Resident Tax

Posted: Wed Nov 24, 2021 1:29pm
6 replies169 views4 members subscribed
Peter3473

Peter3473

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I gained residency in August 2020 and have read on previous post for the year 2020 I would have to pay for the year 2020 non resident tax, then for the year 2021 pay resident tax, I spoke to my tax advisers yesterday and they said that for 2020 non resident tax was correct, but as for 2021 I could carry on paying non resident tax? as long as I kept paying tax on my income in the UK and there was no need to change over to to Spanish tax system? I questioned this and said I was always under the impression that I would be taxed in Spain from 2021 after gaining residency in August 2020, which then for the year 2021 tax would be payable in the first half of 2022? I am again going to meet my Tax advisers near the end of December this year, so any advice/information would be greatly received, as I am concerned they are wrong? Any advice would be great fully received.

Kelvin1960

Posted: Wed Nov 24, 2021 2:00pm

Kelvin1960

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Posted: Wed Nov 24, 2021 2:00pm

I'm not an expert, but from my experience ...

You gained Residency Aug 2020

You became tax-Resident in Spain 1/1/21

You will submit your Modelo 720 in Spain in Feb 2022

You will submit your income tax declaration (for Jan-Dec 2021) to Spain in June 2022

You will pay your income tax to Spain (for Jan-Dec 21) in 2 chunks, June and November 22.

You will continue to PAYE in UK.

In/around October '22 you can apply to get out from the UK income tax system. This can take some time (in our case - Covid impacted - it took 2 years).

You will continue to pay tax in the UK and in Spain (YES - you pay tax in both countries concurrently) until HMRC zero-rate you.

Once zero-rated, HMRC will refund tax pad in the UK. 

So, in a way, your advisor is correct. You continue PAYE in the UK for the foreseeable future, and engage with the Spanish tax authorities from Feb '22 onward.

Peter3473

Posted: Wed Nov 24, 2021 3:14pm

Peter3473

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Posted: Wed Nov 24, 2021 3:14pm

Kelvin1960 wrote on Wed Nov 24, 2021 2:00pm:

I'm not an expert, but from my experience ...

You gained Residency Aug 2020

You became tax-Resident in Spain 1/1/21

You will submit your Modelo 720 in Spain in Feb 2022

You will submit your income tax declaration (for Jan-Dec 2021) to Spain in June 2022

You will pay your income tax to Spain (for Jan-Dec 21) in 2 chunks, June and November 22.

You will continue to PAYE in UK.

In/around October '22 you can apply to get out from the UK income tax system. This can take some time (in our case - Covid impacted - it took 2 years).

You will continue to pay tax in the UK and in Spain (YES - you pay tax in both countries concurrently) until HMRC zero-rate you.

Once zero-rated, HMRC will refund tax pad in the UK. 

So, in a way, your advisor is correct. You continue PAYE in the UK for the foreseeable future, and engage with the Spanish tax authorities from Feb '22 onward.

Thank you Kelvin for your reply and that was my interpretation, but I was in disbelief when my tax advisor stated it was not necessary to change over to the Spanish tax system as long as I kept paying taxes in the UK and just pay non resident tax each year? I will use this information on my next visit, especially the Modelo 720, thank you again for your help.

Kelvin1960

Posted: Wed Nov 24, 2021 6:52pm

Kelvin1960

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Posted: Wed Nov 24, 2021 6:52pm

There a some pensions - Police, Civil Service, Military, some NHS/teachers - on which recipients continue to pay tax in the UK (although a declaration must still be made in Spain).

Peter3473

Posted: Wed Nov 24, 2021 8:07pm

Peter3473

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Posted: Wed Nov 24, 2021 8:07pm

Kelvin1960 wrote on Wed Nov 24, 2021 6:52pm:

There a some pensions - Police, Civil Service, Military, some NHS/teachers - on which recipients continue to pay tax in the UK (although a declaration must still be made in Spain).

I receive a LGP = local government pension scheme only, as I took early retirement at 60 in 2019, I do pay tax on this in the UK and I am on the understanding that the tax threshold/personal allowance is higher than in Spain.

Kelvin1960

Posted: Wed Nov 24, 2021 8:19pm

Kelvin1960

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Joined: 5 Mar 2017

Posted: Wed Nov 24, 2021 8:19pm

Peter3473 wrote on Wed Nov 24, 2021 8:07pm:

I receive a LGP = local government pension scheme only, as I took early retirement at 60 in 2019, I do pay tax on this in the UK and I am on the understanding that the tax threshold/personal allowance is higher than in Spain.

Again, I'm no expert, but you will probably continue to pay income tax on your LGP in the UK, but you will need to declare each year in Spain.

My experience is that the tax-take is higher in Spain. The marginal tax rates are similar (although the upper rate is higher in Spain) but the personal allowances are smaller in Spain. Hence, you pay more tax.

So, in your case, you might be better off paying your tax in the UK, so your advisor is probably giving you sensible advice.

I assume you still need to do your Modelo 720 in Feb '22 and your tax declaration in June 22, but I would ask those questions.

Best wishes ..

Kimmy11

Posted: Wed Nov 24, 2021 11:58pm

Kimmy11

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Posted: Wed Nov 24, 2021 11:58pm

Hi Peter,

I agree with Kelvin, but not with your tax advisors' suggestion that you can continue to pay non-resident tax in Spain when you're resident.  If your LGP is deemed a "Crown" pension then, like my husband who has military pension, you will be taxed at source on the LGP in the UK and this means you cannot take yourself out of the UK tax system.  However, as a Spanish resident, you also declare your LGP (and any other worldwide income) in Spain, but under the terms of the Dual Taxation Agreement, your LGP will be zero-rated in Spain and hence you will not be taxed on it again in Spain - although, depending on the amount of any other income, you may pay tax on that in Spain.

Kind regards, 

Kim

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