flood

Does anyone know (as in NOT a rumour) whether the UK HMRC informs the Agencia Tributaria if a British national resident in Spain is in receipt of a state pension being paid outside Spain ?

Case: English person resident in Spain, state pension paid to offshore bank account, HMRC have Spanish address for recipient.

Mitzyboy

An offshore bank account doesn't preclude you from paying tax flood. I think it was Barclays a year or so ago that were forced to disclose all their ofshore account holders to HMRC, and as far as I know all the others followed suit.

I do know that the Spanish & UK tax authorities are working much closer together, even to the point where UK tax officers are based here in Spain, so it wouldn't suprise me.

A Uk state pension if taxed in Spain though is unlikely to attract much tax if any though

bigglesworth

That would surely depend on whether it was your only declared income though Mitzyboy, wouldn't it?

EsuriJohn

The Spanish personal allowance (over 65) is just about equal to a married couples UK state pension so you would not pay tax if that was your only income. If you have other income then it will tip you into the tax regime.

Beachcomber

I have offshore bank accounts with Barclays and a few years ago I had to opt for either authorising the bank to disclose details of the accounts to the Spanish tax authorities or accepting a 15% withholding tax (now 20% and due to increase to 35% in 2010) on the interest which is deducted and paid anonymously to AEAT.

This is an obligation placed on the bank under the European Savings Directive. AEAT and HMRC certainly exchange information but whether it would extend to a small pension payment I don't know but if you live in Spain and receive a pension you have to declare it in Spain regardless of where it is paid. Certain Civil Service pensions which are taxed at source are exempt from this obligation provided that it is the only source of income.

bigglesworth

I certainly wasn't suggesting withholding information from the taxman. They ALWAYS catch up with you. Unless you are a Russian oligarch or the like

EsuriJohn

My understanding is that if you have a Government Pension taxed at source in UK (as required by HMRC) then you can export your State Pension untaxed from UK and declare for tax in Spain. Your GP is totaly disregarded by the Hacienda and the over 65 personal allowance would mean that you did not pay tax in Spain. Some local offices of the Hacienda may try to add the two together but that is not correct and you do not have to declare the GP at all. (source Blevins Franks)

The big advantage is that you get two full personal allowances, one in each country to set against the income in each country so that if you use both over 65 allowances to the full you should be better off by £2-3000 per annum

Fred James

You may think that and BF may say that but there is nothing in the Double Taxation Treaty that confirms that - it merely says that the income can only be taxed in the UK - it does not say that it cannot be added to your income for the purposes of Spanish tax which could result in a higher marginal rate of tax in Spain.

At the end of the day, if the local tax office insist on it there is little you can do about it. Luckily it rarely happens and when you complete your tax declaration you do not have to identify the sources of your income - that's why you can get away with it!

EsuriJohn

BF is so confident in his interpretation that he quotes an office in the HQ of the hacienda to whom you should direct the local office to get the correct interpretation as per his directions. However I would agree with you Fred these things are never cast in stone and if the Revenue don't like they will use all their muscle (financial and otherwise) to get their interpretation confirmed in court. The get out must be if you have paid tax in UK and you do not have to identify how you pay the mortgage you can as you say "get away with it".

Beachcomber

If your government occupational pension is supplemented by any other income (including a state pension) you must make a Spanish tax return declaring the total amount.

bigglesworth

Sorry for being thick, but presumably this not just government pensions, but personal ones too? Also any idea what happens if one does not take it but rolls it up. (Idle curiosity at the moment, but planning the move.)

Beachcomber

It applies to certain Civil Service pensions for which there is no alternative to being taxed at source. Retired police officers and teachers come into this category and maybe others.

In my own case, although I had an occupational pension that would have fallen into this category I transferred to funds to a private pension scheme and allowed it to roll over for several years.

When I started to draw on it the amount each month was paid gross with no tax deducted so I declare it, along with other income on my Spanish tax return even though, since the fall in the value of sterling, it is now paid into an offshore sterling account and does not come into Spain.

bigglesworth

Thanks, my OH has a pension that might be included so that is very helpful.

Fred James

There are a couple of important points to consider if you have a private pension.

If your pension results in a pot of money that you then put into an annuity then it will be taxed very favourably in Spain. The assumption is that a large part of the income is actually your own capital rather than earned interest, so only a small percentage is liable for tax.

The amount depends on the age you were when you took the first payment but, for example, at age 60 only 24% is taxable.

If you take a lump sum that may be liable for tax so it is important to take any lump sum before you become Spanish tax resident.

Mitzyboy

Yes I understood that you had to declare your Government pension on your Spainsh return and then show it as a deduction "on the other side", at least if you were doing it legally!