Resident/Tax Resident in two countries?
Jul 14th 2011, 6:53 am
#1
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Resident/Tax Resident in two countries?
If someone spends six months in the UK and six months in Spain it appears to me that under each country's rules that they can be officially resident in both countries.
If they pay tax to the UK (because of a Government Pension), and declare the rest of their income to Spain for tax purposes, are they Tax Resident in both countries also?
If they pay tax to the UK (because of a Government Pension), and declare the rest of their income to Spain for tax purposes, are they Tax Resident in both countries also?
Jul 14th 2011, 8:39 am
#2
Joined: Jun 2006
Location: Granada Costa
Posts: 10,898
Re: Resident/Tax Resident in two countries?
It's 183 days not 6 months - that way you will spend more time in one country than the other and will be tax resident in the country that you spend 183 or more days in.
However, the UK, just to be different from almost every other country, have a different set of rules and, in simple terms, if you spend more than 91 days in the UK you are deemed tax resident in the UK.
But there is a double taxation treaty between the UK and Spain and there is a set of rules that determines which country you are tax resident in as you can't be tax resident in both under the treaty.
As for the Government pension, as you know that has to be taxed in the UK but ALL income generated in the UK is taxable in the UK even if you are not tax resident. However certain types of income can be paid free of tax if you are tax resident in a country that has a treaty with the UK. That includes pension income, rental income and dividends and a few others.
An exception to this rule is government pensions which remain taxed in the UK.
Just because you pay tax in the UK doesn't necessarily make you UK tax resident.
However, the UK, just to be different from almost every other country, have a different set of rules and, in simple terms, if you spend more than 91 days in the UK you are deemed tax resident in the UK.
But there is a double taxation treaty between the UK and Spain and there is a set of rules that determines which country you are tax resident in as you can't be tax resident in both under the treaty.
As for the Government pension, as you know that has to be taxed in the UK but ALL income generated in the UK is taxable in the UK even if you are not tax resident. However certain types of income can be paid free of tax if you are tax resident in a country that has a treaty with the UK. That includes pension income, rental income and dividends and a few others.
An exception to this rule is government pensions which remain taxed in the UK.
Just because you pay tax in the UK doesn't necessarily make you UK tax resident.
Jul 14th 2011, 8:57 am
#3
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Joined: Oct 2006
Location: West Midlands, ex Granada province
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Re: Resident/Tax Resident in two countries?
It's 183 days not 6 months - that way you will spend more time in one country than the other and will be tax resident in the country that you spend 183 or more days in.
However, the UK, just to be different from almost every other country, have a different set of rules and, in simple terms, if you spend more than 91 days in the UK you are deemed tax resident in the UK.
But there is a double taxation treaty between the UK and Spain and there is a set of rules that determines which country you are tax resident in as you can't be tax resident in both under the treaty.
As for the Government pension, as you know that has to be taxed in the UK but ALL income generated in the UK is taxable in the UK even if you are not tax resident. However certain types of income can be paid free of tax if you are tax resident in a country that has a treaty with the UK. That includes pension income, rental income and dividends and a few others.
An exception to this rule is government pensions which remain taxed in the UK.
Just because you pay tax in the UK doesn't necessarily make you UK tax resident.
However, the UK, just to be different from almost every other country, have a different set of rules and, in simple terms, if you spend more than 91 days in the UK you are deemed tax resident in the UK.
But there is a double taxation treaty between the UK and Spain and there is a set of rules that determines which country you are tax resident in as you can't be tax resident in both under the treaty.
As for the Government pension, as you know that has to be taxed in the UK but ALL income generated in the UK is taxable in the UK even if you are not tax resident. However certain types of income can be paid free of tax if you are tax resident in a country that has a treaty with the UK. That includes pension income, rental income and dividends and a few others.
An exception to this rule is government pensions which remain taxed in the UK.
Just because you pay tax in the UK doesn't necessarily make you UK tax resident.
So basically the rule is that you cannot be resident for tax purposes in both countries at once.
Thanks.
Jul 14th 2011, 10:21 am
#4
Joined: Jun 2006
Location: Granada Costa
Posts: 10,898
Re: Resident/Tax Resident in two countries?
The reason that tax residency is so important is that you pay tax on your worldwide income to the country where you are tax resident. That's why HMRC are trying hard to get everyone they possibly can to be declared tax resident in the UK. There are proposals being reviewed at the moment which could make you tax resident in the UK if you spend only 9 days there!
It's not going to affect mere mortals (ie. poor ones) like us, but if you have incomes from all over the world and have managed to avoid paying any tax in those countries then HMRC want the tax!
Jul 14th 2011, 10:58 am
#5
Retired and in Spain
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Posts: 195
Re: Resident/Tax Resident in two countries?
It's 183 days not 6 months - that way you will spend more time in one country than the other and will be tax resident in the country that you spend 183 or more days in.
However, the UK, just to be different from almost every other country, have a different set of rules and, in simple terms, if you spend more than 91 days in the UK you are deemed tax resident in the UK.
But there is a double taxation treaty between the UK and Spain and there is a set of rules that determines which country you are tax resident in as you can't be tax resident in both under the treaty.
As for the Government pension, as you know that has to be taxed in the UK but ALL income generated in the UK is taxable in the UK even if you are not tax resident. However certain types of income can be paid free of tax if you are tax resident in a country that has a treaty with the UK. That includes pension income, rental income and dividends and a few others.
An exception to this rule is government pensions which remain taxed in the UK.
Just because you pay tax in the UK doesn't necessarily make you UK tax resident.
However, the UK, just to be different from almost every other country, have a different set of rules and, in simple terms, if you spend more than 91 days in the UK you are deemed tax resident in the UK.
But there is a double taxation treaty between the UK and Spain and there is a set of rules that determines which country you are tax resident in as you can't be tax resident in both under the treaty.
As for the Government pension, as you know that has to be taxed in the UK but ALL income generated in the UK is taxable in the UK even if you are not tax resident. However certain types of income can be paid free of tax if you are tax resident in a country that has a treaty with the UK. That includes pension income, rental income and dividends and a few others.
An exception to this rule is government pensions which remain taxed in the UK.
Just because you pay tax in the UK doesn't necessarily make you UK tax resident.
We are planning to rent out our UK property when we move to Spain next year and have been told by HMRC that rental income isn't covered by the double taxation treaty and that we will have to pay tax on it in the UK. We had hoped to get it paid tax free (better in our pockets initially as Spanish income tax is paid in arrears).
Jul 14th 2011, 12:50 pm
#6
Joined: Jun 2006
Location: Granada Costa
Posts: 10,898
Re: Resident/Tax Resident in two countries?
UK rental income is covered by the treaty but as you say, you have to pay UK tax on it - a slip of the keyboard! However I seem to remember that it is possible to avoid the tax being deducted directly from the rent and you do a self assessment at the end of the year - that's what I did when I was renting.
Last edited by Fred James; Jul 14th 2011 at 12:52 pm.
Jul 14th 2011, 1:38 pm
#7
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Re: Resident/Tax Resident in two countries?
Fred one quick point looking to the future I have military and police pension both of which will be taxed in the UK, when I eventually get old age pension if resident in Spain will I be able to claim that via the Spanish system tax free? or will that be classed as another Government pension.
Jul 14th 2011, 1:46 pm
#8
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Joined: Jul 2011
Posts: 109
Re: Resident/Tax Resident in two countries?
Fred one quick point looking to the future I have military and police pension both of which will be taxed in the UK, when I eventually get old age pension if resident in Spain will I be able to claim that via the Spanish system tax free? or will that be classed as another Government pension.
If you fill in 'The Yellow Form' provided by your letting agent he will be able to pay you your letting income gross. Sorry it doesn't have a more accurate name.
When you do your Spanish tax return you declare only income received in Spain, but there is a section where you add your UK income (in Euros) to find out what percentage tax you pay. That percentage is then charged on your Spanish income only. Then at the end you deduct from your tax bill the tax you have already paid in the UK. It will probably work in your favour if you have a Spanish income of up to about €10k
Your pension will be paid by the Pensions Agency in the UK, gross of tax, but it is counted as taxable income. Your UK tax code will take this into account, and the tax you pay on your other pensions will rise to cover your increased income.
It is very difficult to make a direct comparison between your UK tax and Spanish tax as they work on a completely different basis, but I've been doing mine for 25 years, and that's how it works.
Jul 14th 2011, 1:52 pm
#9
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Re: Resident/Tax Resident in two countries?
Hi Bob,
If you fill in 'The Yellow Form' provided by your letting agent he will be able to pay you your letting income gross. Sorry it doesn't have a more accurate name.
When you do your Spanish tax return you declare only income received in Spain, but there is a section where you add your UK income (in Euros) to find out what percentage tax you pay. That percentage is then charged on your Spanish income only. Then at the end you deduct from your tax bill the tax you have already paid in the UK. It will probably work in your favour if you have a Spanish income of up to about €10k
Your pension will be paid by the Pensions Agency in the UK, gross of tax, but it is counted as taxable income. Your UK tax code will take this into account, and the tax you pay on your other pensions will rise to cover your increased income.
It is very difficult to make a direct comparison between your UK tax and Spanish tax as they work on a completely different basis, but I've been doing mine for 25 years, and that's how it works.
If you fill in 'The Yellow Form' provided by your letting agent he will be able to pay you your letting income gross. Sorry it doesn't have a more accurate name.
When you do your Spanish tax return you declare only income received in Spain, but there is a section where you add your UK income (in Euros) to find out what percentage tax you pay. That percentage is then charged on your Spanish income only. Then at the end you deduct from your tax bill the tax you have already paid in the UK. It will probably work in your favour if you have a Spanish income of up to about €10k
Your pension will be paid by the Pensions Agency in the UK, gross of tax, but it is counted as taxable income. Your UK tax code will take this into account, and the tax you pay on your other pensions will rise to cover your increased income.
It is very difficult to make a direct comparison between your UK tax and Spanish tax as they work on a completely different basis, but I've been doing mine for 25 years, and that's how it works.
It is a few years in the future yet probably even further shortly
Jul 14th 2011, 2:04 pm
#10
Joined: Jun 2011
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Posts: 12,053
Re: Resident/Tax Resident in two countries?
Thanks however I will have no Spanish income only income we will have when we get to old age pension age is my Military, police and old age pension. So from what you say we won't be able to get our old age pension paid direct without tax via Spanish system?
It is a few years in the future yet probably even further shortly
It is a few years in the future yet probably even further shortly
IIRC the taxation is better at the bottom end but gets worse as it goes up
but there are also some things you are allowed to claim for, such as rent on the property you live in and medicines
This may be the time to get talking to an accountant who has some knowledge of DTA, Spain and UK tax - there are not that many of them
Without some advice it will be so easy to go into higher tax bands
Jul 14th 2011, 2:28 pm
#11
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Re: Resident/Tax Resident in two countries?
I don't think Spain looks at it that way - I believe they tax on worldwide income not just income within Spanish boarders unless specifically covered by the DT Agreement.
IIRC the taxation is better at the bottom end but gets worse as it goes up
but there are also some things you are allowed to claim for, such as rent on the property you live in and medicines
This may be the time to get talking to an accountant who has some knowledge of DTA, Spain and UK tax - there are not that many of them
Without some advice it will be so easy to go into higher tax bands
IIRC the taxation is better at the bottom end but gets worse as it goes up
but there are also some things you are allowed to claim for, such as rent on the property you live in and medicines
This may be the time to get talking to an accountant who has some knowledge of DTA, Spain and UK tax - there are not that many of them
Without some advice it will be so easy to go into higher tax bands
Jul 14th 2011, 2:32 pm
#12
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Re: Resident/Tax Resident in two countries?
Cheers even more complications I had heard that although obviously that my government pensions would be taxed Uk, I could claim OAP if resident tax free as allowed 1 pension tax free but obviously not a government one. Yet a little bit more money I thought I may get that looks like it's gone. Agh well
Jul 14th 2011, 2:32 pm
#13
Forum Regular
Joined: Jul 2011
Posts: 109
Re: Resident/Tax Resident in two countries?
I don't think Spain looks at it that way - I believe they tax on worldwide income not just income within Spanish boarders unless specifically covered by the DT Agreement.
IIRC the taxation is better at the bottom end but gets worse as it goes up
but there are also some things you are allowed to claim for, such as rent on the property you live in and medicines
This may be the time to get talking to an accountant who has some knowledge of DTA, Spain and UK tax - there are not that many of them
Without some advice it will be so easy to go into higher tax bands
IIRC the taxation is better at the bottom end but gets worse as it goes up
but there are also some things you are allowed to claim for, such as rent on the property you live in and medicines
This may be the time to get talking to an accountant who has some knowledge of DTA, Spain and UK tax - there are not that many of them
Without some advice it will be so easy to go into higher tax bands
However this does not mean that you don't have to make a tax declaration in Spain - you do, even if you have no further tax to pay. Most of my clients are usually due a refund of tax retained against interest paid on bank accounts in Spain - even if it is a penny or two.
It's a bore, but that's the system.
Jul 14th 2011, 3:02 pm
#14
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Re: Resident/Tax Resident in two countries?
Yes, you are right, Spain taxes its residents on World Wide Income. However the DTA allows you to deduct tax you have already paid in a country which is a signatory to the Double Taxation Agreement. As your pensions are Govt pensions they HAVE to be taxed in the country paying them - but this will in effect include your Old Age Pension when you get it.
However this does not mean that you don't have to make a tax declaration in Spain - you do, even if you have no further tax to pay. Most of my clients are usually due a refund of tax retained against interest paid on bank accounts in Spain - even if it is a penny or two.
It's a bore, but that's the system.
However this does not mean that you don't have to make a tax declaration in Spain - you do, even if you have no further tax to pay. Most of my clients are usually due a refund of tax retained against interest paid on bank accounts in Spain - even if it is a penny or two.
It's a bore, but that's the system.
Jul 14th 2011, 3:35 pm
#15
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Posts: 109
Re: Resident/Tax Resident in two countries?
Yes, there are penalties. They don't catch folk very often (some might say not often enough) but when they do they go to town. BIG fines. There is some arrangements between the UK (or others) and Spain about handing money backwards and forwards - after all, somebody has to look after you/build you a road to drive on/build you a hospital for emergencies, to compensate for residents who are taxed in other places. I don't know the details (leave it to the moguls) but that's the basis for the requirement.