bobd22

Yes that is true they don't wish to acknowledge that as it doesn't fit in with their blame the foreigner routine.

Red Eric

Really?

That's a surprise to me - I thought DTA's were supposed to eliminate, not encourage, the possibility of being taxed twice on the same income. In fact, I thought that at least with regard to Government pensions, the state of residence had no claim at all on that income, regardless of whether the amount withheld in the UK was less than the tax in that state would have been.

Where does your information come from and does it only apply to Spain or do you know if the UK is renegotiating more of its DTAs?

Fred James

Esuri John is perfectly correct. A new DTA came into force this year and it makes it quite clear that UK government pensions must now be declared in Spain.

They cannot be taxed directly as they can only be taxed in the UK but the declaration of the income may affect the tax paid in Spain on any other income that is taxed in Spain.

Article 22.2.b of the new tax treaty says:-

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.

Neptuno

So they really are taxing govnt pensions twice, aren't they?

rafikiphoto

From another perspective it is wiping out some or all of any allowances a govt pensioner may be entitled to in Spain.

Red Eric

Thanks for the explanation Fred. That confirms exactly my understanding of how the existing arrangements work in Portugal.

It seems to me totally contrary to what Esuri John said, which was
Which makes it sound to me as though even if it was your only income, Spain would tax you at their full rate with no allowance for the tax already paid in the UK (whereas, in fact if it were your only income you would still pay no Spanish tax even after this change)

Perhaps I'm just reading that wrong, though.

Fred James

No, it was not contrary at all.

If your only income was a UK government pension it would not affect the tax paid in Spain as no tax would be due in Spain.

It is only an issue where you have a big enough other income to be paying tax in Spain. If so, it would potentially increase the tax rate you pay on that other income.

The net result is that, to a small extent, you are paying more tax on your government pension but according to the wording of the DTA you are not being taxed twice.

Even if the tax in Spain increases, the recipients of government pensions who have other income will pay far less tax than they would do if they were taxed in full in Spain and just offset any UK tax against the Spanish tax.

EsuriJohn

Yes a no of DTA's have been renegotiated last year to come into force this year.

EsuriJohn

I was careful to not say that you were being taxed at full rate with no allowances. However if you are retired with a full UK State Pension and at the current improved exchange rate declared as it should be in Spain you will face a tax charge. This will be higher because of your UK Government Pension so in effect your GP is being "taxed" twice with no offset.

Red Eric

I still don't see that as you do.

If the tax bands were identical in both countries, wouldn't the DTA have no effect on your nett income - just on who you pay the tax to? If you're being pushed into a higher tax bracket on your remaining income in Spain because of the income that's been taxed in the UK, doesn't that mean that you're still paying less tax overall than you would if all your income was taxed by the Spanish authorities?

I'm not being argumentative for the sake of it BTW - I just don't quite see your logic and as I'll have 3 pensions (if I survive long enough), one of which is a UK local gov pension, this will affect me, albeit perhaps not quite in the same way, depending on the DTA with Portugal.

EsuriJohn

I just feel hurt because circumstances have conspired against me. Last year with a poorer exchange rate and the miserable UK State Pension compared to a full Spanish Pension, the Spanish personal allowance (which seems to be set high enough to exclude Spanish Pensions) meant I did not pay tax in Spain. With the triple lock and the greatly improve exchange rate this year I think I will become a Spanish tax payer for real.

Red Eric

Circumstances have certainly conspired against my wife and me. Until 3 years ago our foreign-sourced income was declared and taxable only in Portugal but under the then threshold to actually pay tax. A savage adjustment to the tax system sees us now paying a hefty annual sum in income tax, which in itself is irksome but hey, we live here, we pay the same as the natives, no?

That would be fine but at the same time the Portuguese authorities, in an attempt to attract new residents, introduced a scheme where new arrivals could file for a 10 year exemption on paying tax on most foreign income - and much of that wouldn't be taxed at source if the income-ee resides elsewhere (ie a nice tax-free existence). Under the circumstances a pretty duff move, in my opinion.

And the PM's own historical "misunderstandings" of his obligations with regard to the declaring of income and payment of SS contributions and income tax don't help much either.

But it doesn't do to get stressed about these things. We sleep well at night, eh John?

EsuriJohn

Quite right our corner of paradise is so close to Portugal we almost live there. We started our adventure by looking in Portugal but it was unaffordable compared to Spain so we bought here. Then the world fell over the edge of the cliff and things became difficult but we rode the Rapids through to still waters and the garden seemed rosy. However changes to the tax regimes in UK and Spain dull the shine a little. We are very lucky and we should not grumble.