licinius

John could you take your full tax allowance in both the UK and in Spain? i.e. a UK pension paid into a UK bank and a pension paid into a Spanish bank to get the max allowable allowances from both country's?

Next question, if you get it paid into a bank in Gibralter will it be tax free?

Fred James

If you have a government pension (services, civil service etc) that pension is always taxed in the UK irrespective of the tax residency of the pensioner. In that case you get a full set of UK tax allowances against that income. That rule is part of the Double Taxation Treaty between UK and Spain.

If you are tax resident in Spain then you are taxed in Spain on your world wide income (excluding the government pension). This means that your remaining income including the UK state pension is taxed in Spain. Paying it into a Gib account makes no difference - it is still taxable in Spain. You will, of course, get a full set of Spanish tax allowances against this income.

licinius

Thanks Fred, maybe I'll buy a small apartment somewhere like Bosnia where the rate of income tax is very low & take up tax residence there

EsuriJohn

This only applies to a GP and a SP. If you live in Spain and have the SP paid into a bank in Gibralter it is taxable in Spain but since it is less than your Spanish allowances it will be tax free if you have no additional income anywhere else, but if that is the case why not have the advantage of the HM Treasury conversion £ to € and pay it direct to your Spanish account. It is also possible to get your GP converted after tax and paid into your Spanish account though the rate is not as good.

licinius

I'm still a while off John so it's not urgent, but my ambition in life is now to make sure I have a nice cushty retirement which is why I'm trying to understand the system now.

EsuriJohn

If you have a GP and an SP at that date then Cyprus is better than Spain since it is one of a few places that has a DTT where the GP can be paid Tax free to Cyprus and the Tax system in Cyprus allows pensioners with only pension income to elect for a 5% tax rate on all income.

Im_and_Er

Are you sure of that ?

It implies that someone with say the maximum £1.8m in a UK private pension fund could currently draw down maybe £10 or £11k/mth from it and yet still only pay 5% tax !

If that were so the island would surely be overrun by retired rich tax exiles.

Fred James

That correct. So long as the pension comes from the result of work outside Cyprus you can opt to pay a flat rate of 5%.

It's not quite as simple as that as you only get a tax free allowance of €3400 rather than the usual €19500.

So for someone with a pension of about 25k there's not a lot in it but for someone with a large pension then there can be very large savings. To qualify you would have to be tax resident which means you would have to live there for more than 6 months in a year.

EsuriJohn

There are a lot of rich pensioner about retired Brigadiers, Air Commodors etc.

Im_and_Er

Are you saying that £25k ISN'T a large pension

Fred James

For a start I was quoting Euros but no, I don't think that's a large pension. Half of that can be accounted for by the UK State pension and the rest is a reasonable amount for anyone who has bothered to contribute to an occupational or private pension.

There are many people getting a lot more than that - unfortunately there are also many getting less but I doubt that they will want to live in Cyprus just to pay a little less tax.

Mitzyboy

Half?

Fred James

I was working on a couples pension. That pays €9800 as of next year. On top of that most people get some form of additional state pension, Serps or eqivalent. We got €13300 last year in total as our state pension. That looks pretty much like half to me!