Casey50

Hello all

I would like to ask the forum a question (or two) concerning tax allowances and would be extremely grateful for any information.

I am a resident of Spain (some 15 years) following an ill health retirement in the UK. During this period I have received my ill health retirement pension from my ex-employer and also Incapacity Benefit from the UK government.

I have made all of my tax declarations in Spain (under dual taxation agreement) and in the most part have been zero rated (no tax due) by the Hacienda even though I 'believe' I exceed the 'normal' allowance threshold. I have assumed the zero rating is due to the income (pension and benefit) being classed as disability.

Mid last year I reached UK state pension age and my Incapacity Benefit was then replaced with the normal state pension, my company pension, which was began due to ill health carries on.

My question is, please… does anyone know if my assumption that these two incomes have been Spanish tax exempt due to them being ill health related and if so will the Hacienda still look upon them in the same way now that I have reached retirement age?

The question has come up because my employers pension scheme (the ill health one) is offering me a PIE (Personal Increase Exchange) and one of the deciding factors is which tax bracket this may or may not change to.

Any thoughts greatly appreciated. I have asked two financial advisors, but as usual come across the normal scenario of two different opinions.

Many thanks.

Rosemary

Hi and a warm welcome to the Spanish forum on BE. Myself and Fred James are the moderators for the Spanish forums whilst BEVS moderates Europe. Moderators are there to ensure that the site runs smoothly within the rules of BE. This is so that members gain the information that they are looking for and find their experiences on the forums to be friendly and worthwhile.

Problems and complaints should always be addressed to a moderator who will look into the matter and deal with it efficiently and fairly. Our members who post in the Spain Forums are usually friendly and helpful with a wealth of knowledge about the issues of living in Spain. I hope that you enjoy your time participating in the forums.

Please let me know if you need any further help.

Rosemary

Casey50

Thank you Rosemary for the kind welcome and info.

Fred James

As far as I am aware, the only way you can get increased allowances in Spain is if you are officially registered as disabled in Spain.

If your previous employer was the UK government then that income (if classed as a government pension) would only be taxed in the UK, not in Spain. That would make a big difference.

Casey50

Thank you Fred
In honesty, I can't say what happened when I took up residence, I gave the Spanish authorities all the paperwork and info from the UK (DWP) and I assume they decided upon classification/status.

My ex-employer and hence ill health pension was a private company.

Fred James

You should have a copy of all your tax declarations, so you can easily check just how much income was declared and what allowances you were given.

Who completed your tax declarations for you for all those years?

Assuming that your declarations were correctly made, then now that you are officially retired, nothing really changes income wise so I would expect the future declarations to be similar, although an improved exchange rate will increase your income this coming tax declaration.

Casey50

I do have my past declarations, but I am ashamed to admit that I don't really understand it and my Spanish is still bad.

In the early years my tax returns where completed by a local gestor. The last couple of years I have just agreed the Hacienda's self assessment.

One factor that did arise a few years back (when the gestor was presenting the return) was the Hacienda once assessed my liability at a several hundred euros for that year. I queried this with the gestor who told me that he went back to the Hacienda and advised them that the income was due to ill-health at which point the liability was reassessed as zero rated.

Fred James

In which case, I would continue doing it that way rather than change anything.

Just make sure their figures for your income are correct.

Casey50

I agree Fred, I don't wish to rock the boat and have the Hacienda change the current situation.

However, I would be much more at rest if I could establish/find out if I am being taxed correctly and assessed on any disability allowance.

This could potentially be important in my decision to accept my pension PIE or not which would increase my annual pension by some 5-6k eu and either take me into a different tax bracket or it might still be classed as zero rated due to ill-health… I just don't know and this is my concern!

Fred James

I very much doubt that you are getting your pension zero rated. As I said, the best you will get, if you were totally disabled, would be increased allowances. It's a very tough and complicated process to get registered as disabled in Spain and I think you would know if you had been through that process.

Incapacity benefit is taxable in the UK, depending on your other circumstance. I very much doubt that it would be taxed any differently in Spain, but I have no experience of this, so if anyone else has, please speak up.

I think you would be advised to find a new gestor and get him to look over your past history and present situation as some mistakes may have been made in the past.

Without knowing the actual amounts involved, and without sight of your tax declaration, it's difficult to assess the situation.