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Paying Tax In Spain

Paying Tax In Spain

Old Jul 3rd 2012, 12:54 pm
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Default Paying Tax In Spain

Hopefully this will not come across as too complicated and someone can offer me useful advice.

I had problems with HMRC two years ago after having received no tax returns for three years due to HMRC sending them to my old address despite me notifying them TWICE of my new address.
However my appeal against having to pay back three years tax was dismissed and I was granted paying the sum due (several thousand pounds) by monthly instalments.
I receive a UK Civil Service Pension which I know has to be taxed at source in the UK and I receive the State Pension.
I complained to the Financial Services Authority who took my case on but also said I had no grounds for appeal.
However the person dealing with it advised me that I should not be paying tax on my State Pension and gave me a contact at HMRC in the UK.They advised me that I should not be paying tax on my State Pension and I was sent forms to complete to have my SP taken out of the UK system.
To do that however I had to register with the Hacienda,Spanish Tax system and I completed this in Malaga.
Now through ignorance and lack of advice and believing that as my pensions were taxed in the UK I did not need to register in Spain. I had never registered with Hacienda although I have lived here in Spain for ten years, therefore (surprisingly) the clerk at the Hacienda office in Malaga completed my forms and nominated me as Non-Resident to avoid having to pay a large multa (fine) for not registering during the past ten years.
Now HMRC inform me I am due a rebate of several hundred pounds and will pay it into my bank. This worries me as the bank are duty bound to inform Hacienda of my deposit and on checking they will know I am resident but registered as Non-Resident.
Hopefully someone out there can grasp my problem and offer good advice as to what my next step should be.
My intention is not Tax Avoidance and I have never avoided pauing my taxes.
I should point out I rent an apartment and have no assets or money in the bank.
Thanks for any help or advice given.
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Old Jul 3rd 2012, 2:20 pm
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Default Re: Paying Tax In Spain

Well, what can I say
I think most people realise that you should pay tax in your country of residence, and living in Spain is no different

They way it should work is that your civil service pension is taxable in the UK, using the UK tax allowances to reduce any tax
The state pension is taxable in Spain using the Spanish allowances. Therefore if you have basic state, and a relatively small Govt pension you incur no taxes (unless you have other income).

You have, by the csiounds of it, not declared tax in Spain for ten years, but have now paid tax in the UK for ten years (including the installments). Theres a dual tax treaty between UK and Spain which means in effect you wont be paying tax twice. So in theory on a Spanish tax return what you have paid in the UK is deducted from what would have been due in Spain, and the difference is due to the Spanish tax man ....... plus any interest and penalties that they might want to apply.

Fred James is our expert here on tax
I think what I have spelled out above is more or less the size of it, but he may sharpen the edges.

I dont really understand why the tax man here would make you make an incorrect declaration (that you are a non resident when you are actually a resident). I understand the advantage it gives you, but in essence it's a mis declaration isn't it?
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Old Jul 3rd 2012, 3:05 pm
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Default Re: Paying Tax In Spain

As Mitzy says, you are taxed in both countries, the Govt pension in the UK and the OAP pension in Spain.

Unless your OAP pension is more than the basic £107/wk (due to Serps etc) the the Spanish allowances will cover it so you should not need to pay tax on it.

So, if that is correct and you don't have any other income, you haven't been guilty of not paying Spanish tax when you should have done.

Where you are "guilty" is not having made a Spanish tax declaration for the years that you have been tax resident in Spain.

Luckily this is not classed as a heinous crime but you could, in theory, get fined for not making the annual declarations. However there are loads of people who do not have enough income to generate a tax bill and they have never (erroneously) declared.

The tax rebate you are getting from HMRC is a red herring. There could be loads of legitimate reasons for getting a tax rebate (usually due to HMRC incompetence) and the Spanish taxman will not get worried about this even in the unlikely event that he accesses your bank account..

My advice would be to make a tax declaration for the current tax year (due in June next year). This will generate a zero return and that in itself can present problems as some gestors will just tell you not to bother. Insist on it being processed and then you will be officially in the system as a bona-fide tax resident. Submit a zero return every year in future and I very much doubt that they will ever question why you didn't submit one previously.

There is a very slim possibility that you could get a fine for non declaration but I very much doubt it and I certainly wouldn't lose any sleep over it.
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Old Jul 3rd 2012, 3:12 pm
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Default Re: Paying Tax In Spain

Bear in mind that over that ten year period the Spanish tax rules have probably changed several times.

Re. the Uk tax thing caused by them sending to the wrong address, did they inflict penalties on the unpaid tax - they sometimes do this after you have actually paid the tax so it comes as a second shock.
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Old Jul 3rd 2012, 4:11 pm
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Default Re: Paying Tax In Spain

Originally Posted by britishbull View Post
Bear in mind that over that ten year period the Spanish tax rules have probably changed several times.
.
Not in any way that would affect this situation.
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Old Jul 3rd 2012, 4:28 pm
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Default Re: Paying Tax In Spain

Many Thanks Mitzyboy and Fred.
Sound advice which I will heed and cease worrying.
I just wanted to be sure.
Britishbull. Yes penalties were applied as was interest applied to the monthly payments.
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Old Jul 5th 2012, 6:40 am
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Default Re: Paying Tax In Spain

Just read this.
Minister for Hacienda, Cristóbal Montoro, has abandoned the idea of collecting 10% from those who bring their hidden assets into the open, after the lawyers representing some of the them complained about the measure.

Now, instead 10% being charged on all the assets brought out into the open, now only those from the last three years will be used in the calculation, and no interests or charges will be imposed.
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