Brano77

As relative new comers to Spain we are (I hope!) in the last knockings of setting ourselves up correctly. Bought house, NIE’s/Residencia in place, UK car matriculated, planted potatoes, bought chainsaw, drunk lots of wine, etc. etc. Now finalising tax matters. Whilst I have posted threads on tax issues and read old threads there have been conflicting views, and perhaps more concerning, differing financial opinion/ advice from Spanish professional advisers - Abogados y Asesores.

Based on the following scenario (which is probably quite typical for many ex-pats),

Tax Resident Spain (2008),
UK domiciled
Not working.
UK Company Pension (<£15000),
Married
Age 58 / 58,
Renting UK House (deeds in one name only)

I believe the following is correct and the best way forward for our particular circumstances

UK Company Pension will be subject to Spanish tax at approx 24% but we can offset a Spanish single allowance and family allowance (Euro 5151+3468) against this. Despite the higher tax % in Spain we will be marginally better off because of the higher joint tax allowance - although this will change as exchange rates vary £/Euro.

UK rental income will be subject to UK tax (IR 20) but I can offset the normal expenses on rental income and more importantly a UK single persons allowance of £6035 against that income. This flies in the face of some posts that are adamant that if Tax Resident in Spain one must pay Spanish Tax on ones worldwide income. I don’t currently believe that’s correct - one could choose to, by completing an FD9 - Relief at source of UK Income Tax and declaring the rental income in Spain but that would not be cost effective.

Therefore, ignoring issues on capital gains tax (if we retain the UK house for more than 3 years) we will be better off! So, need to complete "P85 Income Tax Claim when you have left or are about to leave the UK" and "FD9- Relief at Source of UK income Tax" for the pension only. For the UK rental income I will need to complete an annual self assessment return. In Spain we must submit a tax return by June of this year.

Any comments would be most welcome, hopefully confirming my assessment of the way forward.

It all seems to good!!?? Next the health cover challenge

snikpoh

I don't think so ... If Spanish resident then ALL worldwide income is taxable in Spain. However, if it has been taxed elsewhere already, then under the double taxation treaty, you don't have to pay tax again. Basically, it MUST be declared in Spain but any payments can be offset against the final tax bill.

Well, that's my understanding anyway.

I'm also confused as to how you can have allowances in both countries. Surely you should declare all income in just one place?

Hillybilly

Yes, UK rental income is subject to UK tax. There is no exception to this rule.
Yes, you will benefit from your Personal Allowance in the UK.
Yes, you are "supposed" to declare it as (already taxed) income in Spain, just in case they want a bit more tax on it!
Hopefully, after your allowance, offsetting expenses etc you will have no tax to pay on rental income in the UK. After 3 years (as happened in my experience) of submitting no-tax-to-pay UK tax returns, IR will become fed up with checking your paperwork and tell you not to bother submitting returns any more, unless your circumstances change.
Re CGT (which we're ignoring!), if your previously main home has been rented out there are generous exceptions for having to pay CGT which are worth checking out.

Fred James

Your calculation of the Spanish tax allowances omits the “earned income” relief which you will be entitled to even on a pension. That will be an additional 2448.

For the benefit of others in a similar position, it is worth pointing out that if the pension is in the form of a personal annuity, then there are some very large allowances available based on your age when you first took payments. Most company pensions do not fall into this category but some “money purchase” schemes do comply.

Your UK rental income must be declared in Spain but you will be able to deduct any UK tax paid and, yes, you are correct about getting a UK personal allowance against the income. The double taxation agreement does not specifically cover rental income, and you would not be able to declare it on the FD9 form as this also does not cover rental income.

The Spanish tax authorities (allegedly) no longer accept the FD9 form and will not sign it. This means that you will have to wait until you have declared for tax in Span in the normal way and then get a certificate of tax residency which can then be sent to HMRC. This new procedure will mean that you will still be paying UK tax on your pension for a little longer but you pay tax in arrears in Spain so that tends to compensate for the delay in becoming “tax free” in the UK.

Fred James

Broadly true. The major exception, which does apply to many expats, is a government pension.

This is taxed only in the UK and is not declared in Spain.

EsuriJohn

What an excellent and concise analysis and I believe correct. Not quite our circumstances but we would bank on being marginally better off as Spanish Tax residents because of the two sets of personal allowances.

Chiclanagir

I see you have the house in the UK in one persons name. If you add the other partner then you can claim two personal allowances against the UK rent.

Fred James

Surely that would require an expensive legal process to change the ownership which would almost certainly cost more than the small tax saving.

Brano77

Many thanks for your replies and confirmation that in general terms my assessment of what is required is correct.

Hillbilly -noted re CGT - I don't think it's an issue to be overly concerned about as you suggest. Certainly not a good time to be selling a UK house and many advantages to have a bolt hole/income earner/address in the UK.

Fred - thanks again for information and pointing out my allowance will be 2448euros more than I thought. I am currently paying UK tax at source on my company pension income,so provided the IR eventually accept my none UK residency for 2008 onwards I will be able to claim back any overpayment of UK tax. Whether I have to pay the tax due in Spain first or this is covered by the double taxation agreement I am not sure.

Chiclanagir - noted and I will look at this but there are obviously set up costs to consider in terms of Title Deed changes.

John and Cath - thanks for confirming that the wood I now see through the trees is there or thereabouts. The pine trees around us in "Green Spain" are covering everywhere in yellow pollen including my airways!!I've been all day thanks to antihistamine.

jdr

Watch out for the caterpillars.

bigglesworth

I did wonder - Pine Processionals? Is that the first sign?

jdr

You see the nests in the trees, have a look in free beer thread.

Click on attachment pic and it will enlarge it twice, you can see them on the nest.

bigglesworth

I imagine Fred will correct me if I am wrong, but we have council tax levied on both names. When we rent the house out, we will apply to the Inland Revenue for an approval number for an NRL form, which will enable us to receive the income without being taxed at source. We then intend to tell the Inland Revenue (probably in the same letter) that we are splitting the rental income 50/50.
In my experience, (sorry if this offends some) the Inland Revenue are usually quite helpful, and quite understand trying to minimise tax. It is avoiding it that p*sses them off