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Old Apr 6th 2013, 2:33 pm   #1
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Default New Double Taxation Agreement between Spain and UK

It was announced last week that there is a new draft DTA, which is just awaiting ratification by the respective parliaments.

I've just had a wander through it, and there are some good things, such as witholding tax on dividends reduced to 10% (currently 15%), and 0% (currently 12%) on interest.

However, there is, in my view a hidden tax if you have a government pension, which is currently only taxable in the UK. If you have any other income, such as a state pension, which is taxable in Spain, then you currently get the benefit of two personal allowances.

A government pension is still only taxable in the UK, and this is a standard clause in all OECD based agreements, BUT, in Article 22, under Elimination of Double Taxation it says

b) Where in accordance with any provision of the Convention income
derived or capital owned by a resident of Spain is exempt from tax in
Spain, Spain may nevertheless, in calculating the amount of tax on the
remaining income (or capital) of such resident, take into account the
exempted income or capital.

My understanding of this, is that they will add the value of a government pension to the income to be taxed in Spain, which will presumably impact your earned income allowance, and possibly your marginal rate of tax.

Unless my interpretation is incorrect.
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Old Apr 6th 2013, 3:12 pm   #2
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Default Re: New Double Taxation Agreement between Spain and UK

That's correct.

There has always been some dispute as to whether you should declare details of your UK government pension and this clarifies it.

There is a box on the tax return (687) - rentas exentas - where you enter the full amount of the pension. This results in a complicated recalculation of the tax rate that will apply to your other income.

As a result the total tax bill will increase in most cases but the UK pension is not taxed directly.

In the past some assessors have done it this way, others have ignored the pension entirely. This now clarifies that.

Of course it won't apply to this years declaration but presumably will come into effect next year for this years income.
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Old Apr 6th 2013, 5:14 pm   #3
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Default Re: New Double Taxation Agreement between Spain and UK

From Business over Tapas:
Spain and United Kingdom have signed a new treaty to avoid double taxation between the two countries (From the La Moncloa Government website, in English). 'When it comes into effect (within three months of its ratification), this treaty will replace the agreement signed in London on 21 October 1975 between Spain and the United Kingdom of Great Britain and Northern Ireland, to avoid double taxation and prevent personal income and wealth tax evasion. ("Official State Gazette" of 18 November 1976).
The new treaty updates the text of the former document, which had become out-of-date in certain regards due to the considerable period of time that has elapsed since it first came into effect.
This update has led to the text being adapted to both the requirements arising from current economic and trade relations between Spain and the United Kingdom, and the successive changes that have been made to the OECD's Model Agreement on double taxation. A response has thus been given to the main problems that the previous treaty was unable to resolve, including the treatment of residents not domiciled in the United Kingdom and trusts.
The new agreement means a considerable reduction of source-based taxation, establishing exclusive residence-based taxation for those dividends derived from majority shareholdings, as well as for interest payments and fees. Furthermore, it includes an arbitration clause for the resolution of any conflict that may arise from applying the new agreement.
Spain is thus moving forward in its commitment to renegotiate all those agreements that, due to the passing of time and the strong economic relations maintained with certain countries, need to be adapted to the new status quo
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Old Apr 9th 2013, 6:54 am   #4
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Default Re: New Double Taxation Agreement between Spain and UK

The exchange of information provisions have a new paragraph

“If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes”.

This could clear the way for software programmes that interrogate the respective databases; for example UK returnees that file modelo 030 as having left Spain but do not show up as UK residents, or “non UK residents” who file modelo 210 in Spain. It would not cost much to write and run the programmes.

Also, in the new treaty individuals are to be given credit for income tax paid rather than tax paid. This rules out my idea of claiming council tax against Spanish tax on imputed rents.
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