Mercedes

Is anyone earning from a UK companyor overseas but based in Spain? Just wondering which tax system one should be on.

sibsie

You can't elect where you pay tax, it's based on your residence. There is a double taxation treaty in place so that you can't be taxed twice on the same income. The Inland Revenue (surprisingly helpful) will give you full details.

Mercedes

Thanks Sibs. At the moment I'm 2 weeks in Uk a month, and have 2 wardrobes and 2 beds..... I haven't been living in any country for more than 6 months for a while. Maybe I could tell them I'm a gypsy, LOL.

sibsie

Hmm, you may be on to some super genius tax loophole! Sounds like a nice set up though.

coralsoft

It's quite a well known loophole - do a search on 'perpetual traveller' to find out more. Basically, if you're in a country for less than a 6 month stretch, the local authorities tend not to be too interested. If you can wangle leaving your original tax country by becoming non-resident for tax, then stay in no country longer than 6 months, you effectively end up paying very little tax.

Depending on your circumstances, you may be able to stay in the UK tax system by being on some form of secondment in Spain - there are informal 2-5 year limits on doing this under normal PAYE/NI arrangements and it's what most big companies do when they send people abroad for a spell. I did this for a while through my UK company, then set up a Spanish company to bill UK clients and switched fully into the Spanish tax system.

So much depends upon personal circumstances and ways of operating that even professional advice can be a little indecisive, but the IR in the UK are pretty good for their advice.

cheers,
coralsoft

Peejay

Not quite true. This is currently a rather grey area (even as far as the Inland Revenue are concerned) - this is especially true of all the people like me who work in Spain via the internet and get paid in pounds into a UK account. The general consensus from most people (including a gestor in Valencia that we spoke to last week) appears to be that you continue paying tax in the UK (and don't file any Spanish tax return), but pay social security in Spain.

sibsie

I was pretty sure that as a resident or if you are there more than 183 days a year, you *have* to file a Spanish tax return regardless of where you're working unless you're subject to witholding provided the income comes from just one source. If your income comes from more than one source you have to file. You can't just not declare the income simply because it's gained outside of Spain.

Peejay

It seems to be a pretty poorly understood area. Ask 10 people and you get 10 different answers. It's something that the respective tax authorities really need to clarify, as more and more people are finding themselves in this situation.
My wife is in the process of starting a business in Spain but also does some work in the UK via the internet. She has been told by her getsor to file a tax return in the UK for all UK work and one in Spain for all Spanish and not to mix them up. I think that as long as you're paying the tax somewhere then you shouldn't get any nasty surprises in the future.

sibsie

With Spanish income tax rates, it may serve her better to pay taxes in Spain if she meets the residency requirements. There's a double taxation treaty in place to avoid her being taxed twice.

I found the Inland Revenue remarkably helpful. I signed off from the UK system even though I had a monthly income from the UK and filed my returns in Spain. It worked out well because it was a "crown" income so I ended up being exempt.

EsuriJohn

Hi Sibsie,

I may have stumbled across an answer to my unasked question. That is if I have a crown income a "PCSP" which is taxed at source in UK, and as I understand it always will be, if I become resident in Spain and have an income from say letting this will be taxed in Spain with all proper allowances given against that income in Spain. But since there is the double taxation treaty do I have to declare this income in UK so that if the UK tax level is higher I make up the difference in UK. That's how I understand it and I think how its designed to operate ie. if you pay tax in one country and the other would tax at a higher rate then you have to make up the difference. this may only be true if you are resident in UK and non-resident in Spain but then the tax level in Spain would be a straight 25% with no allowances.

Regards,

John.

sibsie

Here's what I did. I notified the Inland Revenue that I was leaving the UK and they stopped taxing my income at source. I declared my income in Spain but because it was a crown income it wasn't taxable.

As far as I'm aware, you don't have to make up any difference if the country you're resident in has a lower tax rate.

EsuriJohn

Hi sibsie,

Thats one way to give myself a 22% rise,(nearly fat cat levels) I'll get right on to that tomorrow and ring IR do you know the office and No. or will any office do?

Regards,

John.

sibsie

I called the office that covered my tax # which was Swansea, even though I was a Londoner.

The website is http://www.hmrc.gov.uk/ and you'll want to have a look through http://www.hmrc.gov.uk/pdfs/ir138.htm . Though to be honest I found it far more helpful to deal with them over the phone so I could explain my situation to them.

sibsie

Here's some blurb that may be applicable to your situation.

EsuriJohn

Hi sibsie,

Well I've spent some time today looking into this. To quote from David Searl "A Spanish Tax Office information officer has declared that, as far as the Hacienda is concerned, these UK civil service pensions 'do not exist', and need not be declared. They include the pensions of municipal employees as well."

Also Bill Blevins, who I regard as the definitive authority on financial matters writes "Some Spanish tax inspectors seek to add the UK Government Service pension to your other income to determine the tax rate on that other income. So the UK pension remains tax-free, but you end up paying tax at a higher rate on your other income. Refer the tax inspector to their head office as UK Government Service pensions simply do not exist for any Spanish tax purpose." However the UK state pension is taxable in Spain but not in UK, for Spanish residents.

My tax office in Cardiff insist that my PCSP will still be taxed at source (I will check this with the overseas office at Bootle), so no "fat cat" rise for me. You seem to have done well then.

Residency will still save me money since I will be able to offset expenses against my rental income for the summer months when it is too hot for us to stay in southern Spain. In addition I would not be liable for the property owners "imputed income tax" since my villa would be my principal residence.

Out of three books two (Bill Blevins is one) seem to say I would have to make up any difference between UK tax demanded and Spanish tax paid since UK would tax you on your world-wide income even if I am non UK resident, and one says not.

Regards,

John.

PS. I have ordered leaflets IR 20, IR 138 and IR 139 for more research.