Neptuno

Blevins Franks have an article inthe EWN this week summarising changes to the tax system.
Disappointingly, though we were led to believe big changes would be made to IHT, to correct the imbalances and injustices between the regions, nothing whatever was done.
Worryingly, the government propose an "exit tax" for those residents becoming non resident, no details yet, but sounds ominous!
I was wondering if the financial gurus on this forum could explain the changes to the double taxation treaty. Does it just concern the declaration next year of government pensions in the tax return, or or are there other changes!
There was an opportunity to make changes to the tax system, to be fairer eg IHT, but instead Spain has shot itself in the foot yet again with its punitive approach, and are intent on killing off the golden goose for good!

two tubes of toothpaste

Spain’s Tax Reforms – How Will You Benefit?

Neptuno

That's the article I was referring to.
In addition I wonder if it also affects those people who have chosen to put their Spanish property into a well known company in the UK?

Fred James

The changes in income tax will reduce the average tax bill significantly.

The details are in the link just posted.

Details of the changes to the tax treaty are here

New Spain-UK Double Tax Treaty

The only significant change likely to affect the average expat is regarding UK government pensions. Although these will continue not to be taxed directly in Spain, the amount of the exempt income has to be included in your tax declaration which, in most cases, will result in a significant increase in the Spanish tax due.

This has actually always been the case but the previous treaty was somewhat ambiguous on this point and as a result, most tax advisors suggested that it should not be declared.

The new treaty now words in in a very clear way.

If the "exit tax" is similar to the existing French tax, it will only apply to potential capital gains where the person holds significant shareholdings in companies - typically 1% or more than €800000.

Neptuno

Thanks- much more helpful than the previous reply

CapnBilly

Not sure I agree with your analysis of the impact Fred. Unless I have misunderstood, or misread the draft tax law, anyone who earns more than €14,500 will be paying a little bit more. Under €12,000 you will pay nothing.

As I read the draft law, but of course I may be completely wrong, there's no earned income allowance if you earn over €14,500. I haven't finished reading through it yet, so there may some compensation somewhere else, but that's my initial analysis. I find it odd that blevins say anyone earning under €24,000 will pay 23.5% less tax, unless that's based on the existing earned income. There is no mention of the allowance changes in their write up. Personal allowances rise to €5,550 or €6,700 over 65, and €6,950 over 75.

Fred James

I was more interested in the impact regarding government pensions. If all the tax rates have come down I can't see why anyone should be paying more tax.

Are you sure the new 14500 figure for the earned income allowance is not an increase in the cut off point for the minimum allowance, rather that them scrapping it?

The age allowances you quote don't look right as the over 75 allowance is already 7191.

CapnBilly

No, I think it's definitely been scrapped, because under €11,250 you get €3,700 and then between €11,250 and €14,450 it's €3,700 less the difference between the two multiplied by 1.15625, which for €14,450 is zero.

I have found an additional clause in the expenses section, which appears to allow you to claim a fixed €2,000 for working, but it talks about trabadores, so not clear it applies or pensions. Its all very strange.

This is what it says

f) En concepto de otros gastos distintos de los anteriores, 2.000 euros anuales, sin que el rendimiento neto resultante como consecuencia de esta minoración pueda ser negativo.

The figure for 75 is €8100, it's plus €1400 on the 65. I added it to under 65.

I've only started reading through it today, and there's a lot to absorb.

Fred James

Have you got a link for me to the draft law?

I don't understand the "trabadores" bit - how do you define a worker? The current situation is that even pensioners get the earned income relief and pensions (apart from annuities) are treated the same as true earned income and declared in the same box..

NadiaN

I think this part applies to autonomos. They are removing the 5% "gastos de dificil justificaction" that you could deduct from your taxable income, and replacing it with a fixed amount of 2,000 euros.

Here is one of the places that mentions this:
¿Cómo afecta la reforma fiscal a los autónomos?

Fred James

It may well apply to Autonomos but I have now looked at the details in the proposed law and there is nothing that suggests that it doesn't apply to anyone who has earnings from working and that category has always included people with pensions.

If it doesn't apply to pensions or other earned income, then with the earnings relief being reduced to zero on incomes over 14.5k, an awful lot of people will end up paying more tax, rather than less, which is contrary to what the government have suggested.

EsuriJohn

Hola Fred I will PM you with some figures but if the only effect of the DTT change is for GP Pensioners with an increase in marginal tax rate I don't think it would affect me since I only receive the minimum full SP having been contracted out for 45 years together with a generous GP. I have no other income either in UK or Spain so at today's average rate the only income I have which is taxable in Spain is €710 every four weeks. So in my 2015 declaration if the pound/euro rate stays up it would be approximately €9330 declared as earned income which even with the tax changes would still be below the tax threshold for a 70 year old pensioner. So if I do not pay tax my marginal rate should still be zero.

Fred James

It's not as simple as that. They use a very strange calculation which can result in someone who currently pays no Spanish tax ending up with an additional tax bill.

For example, a 75 year old with a €10k Spanish income currently pays no tax, but if you factor in a €25k UK pension his tax bill will be €922.

Those figures come directly from the PADRE tax program.

OK, they may change with the new tax reforms, but it really isn't clear yet what those reforms are.

EsuriJohn

But is that £25k UK pension a GP or a private pension which I thought were declared in different boxes.

Fred James

As we are discussing UK government pensions I would have thought that is was obvious that is was a government pension - and it was €25k not £25k GBP