Neptuno

I know that if your income and interest on savings is below the threshold in UK, your interest can be paid gross.
What if you live in Spain, are exempted from paying UK tax on your pensions, but have a small military pension, liable to tax in UK only.
On its own plus UK savings interest, it would be well below the threshold there, so savings tax could be paid gross. However, if all the income(even though tax is paid in Spain) was taken into account it would be above the threshold, and interest would have to be paid with tax deducted.
How is savings interest treated in regard to incomes originating in UK, but tax paid in Spain.
Would it be possible to have interest paid gross in UK without taking the other incomes into account?
I know some banks will pay interest gross if you live abroad, but some, including the big names, won't.

Fred James

The UK-Spain tax treaty has changed and now interest earned in the UK by a Spanish tax resident can only be taxed in Spain. Previously it could be taxed in both although it was limited to 12% in the UK and you could offset UK tax against Spanish tax to avoid a double taxation situation.

That has now changed so the financial organisation must pay it gross - I don't know exactly how that works at the UK end but previously some allowed it and some didn't, so this should sort out that anomaly. Effectively interest is now treated in exactly the same way as non Crown pensions - taxed only in Spain.

The other change is that your government pension, although only ever taxed in the UK has to be declared in Spain and that may affect the tax rate you pay on the other income taxed in Spain.

Previously holders of UK Crown pensions really had it both ways in that they got a full set of allowances in both countries and also paid the lowest tax rates. This has now changed so UK Crown pension holders will now find, in most cases, that they will pay more tax.

snikpoh

Fred, do you have a point of reference for me because Nationwide are still adamant that they will NOT pay interest gross! Do you also know the process to complain when this happens? thanks

Fred James

As far as I know, the agreement has been signed but I am not sure exactly when it comes into effect. That may be why Nationwide won't play ball yet.

It only enters into force when it has been through each countries legislative system.

I will see if I can find out the details.

If you want to read it, it is here.

http://www.hmrc.gov.uk/taxtreaties/s...k-protocol.pdf

bob_day

Does this mean then that interest received from UK Banks no longer has to be declared on the annual UK tax return if you are Spanish tax resident?

rafikiphoto

When this is eventually ratified I suppose we will need a few copies of a current certificate of tax residency in Spain to present to UK financial institutions currently refusing to pay interest gross.

CapnBilly

The new Spanish UK DTA was signed in March 2013, but is not yet in force. It appears to be still awaiting parliamentary approval in the UK, not sure about the Spanish end. The last time I looked, it starts 3 months after diplomatic notifications of the approval, and then from the day it comes into force for tax withheld at source, and other income from the tax year starting after the day it comes into force.

Neptuno

I noticed one of my husband's bank account has had interest paid gross, the others paid net. Why?
When will the UK banks pay interest gross. Do we have to contact them, or will it all just happen. I've written many letters to our bank, sent the appropriate forms over the years, to no avail.
Does this new ruling have any effect on bonds, where at the moment interest is only taxed when cashed in?

crookesey

Off topic but IMHO worth mention.

A UK Buy to Let landlord had all of his properties re-possessed by the lender because of of couple of lines of small print in the terms and conditions.

The guy had never missed a payment, his properties were bringing in over the 130% of repayment criteria, so what had he done wrong? He hadn't noticed that if his properties dropped to below 85% loan to value that the lender had the right to foreclose, which it did. The property crash brought his loan to value down to circa 70%, so say that he had 30 properties originally valued at an average of £150K each, that makes £150K X 30 = £4.5 million x 85% = £3.825 million, so he has paid £675,000 in deposits. But the portfolio is now worth 15% less, so if he can't come up with the difference (another£675,000) he waves goodbye to his business.

The lender now has a bargain letting company, this type of wording could be placed in any mortgage's terms and conditions, this guy couldn't even claim legal incompetence as buy to let mortgages were not covered by the FSA. How safe are Spanish mortgages if the lawyer fails to point out something like this?

This was supposed to be in the mortgage related post, god knows what I did to get it into this one, can a mod please oblige?

chopera

Your figures don't make sense. If there value of a property goes down then the LTV increases rather than decreases. I think you are talking about a margin call, which are sometimes written in to contracts, but I've never heard of one actually being called on a property. If the debtor is paying the interest then there's usually little cause to go to the trouble (and expense) of repossession.