Tax on pensions? old thread
 

I have been looking at the above old thread from October last year, with much interest.As I will be living on my NHS occupational pension for three years, before my state pension kicks in, I was a bit concerned about how much I would be taxed on it. It certainly isn't a kings ransome, and initially it looked like I may be worse off, however, I spoke to someone, who was recommended to me, who said that as, in Spain, mortgage repayments can be offset against tax, I may get away with paying only a token amount. I was wondering, what experiences others have had with this. :unsure:

Re: Tax on pensions? old thread
 

Might be difficult, as your pension is from a UK goverment agency, which means it is paid and taxed in the UK(you have no choice in this as I understand it!!)therefore unlikely relief on a spanish mortgage will be available when your tax will be paid in UK

Re: Tax on pensions? old thread
 

Hi Solarwizz and Brenda,

I think you will find that NHS pensions are not considered to be Government Pensions so it can be exported gross and will be taxed in Spain if Brenda becomes tax resident.

Regards,

John.

Re: Tax on pensions? old thread
 

NHS pensions are not considered to be Crown pensions and are taxed in Spain.

Mortgages are allowable on your primary residence. You can claim 15% of the total payments (interest + capital) up to a maximum of around 9000 euros.

Thats about 1350 euros and it is treated as a deduction rather than an allowance so it comes off the total tax due.

If you are taxed seperately and share the mortgage you both get the deduction.

Re: Tax on pensions? old thread
 

Thanks very much, I'm feeling quite reassured :)

Re: Tax on pensions? old thread
 

I stand corrected, thanks, I see you can also claim back against the capital??

Re: Tax on pensions? old thread
 

Interesting as I was in the lawyers office on Friday starting the process of buying a house and asked if there was tax relief on mortgage payments to be told no there isn't. Can anyone clarify please?

Re: Tax on pensions? old thread
 

Hi Solwizz,

I know its weird but at first I thought it was because NHS was a fully funded contributory pension scheme as are Local Government and Teachers ie you have to pay 6+% for 40 years to get a full pension. But no its not that because Local government and certain teachers are classed the same as Civil Servants and the Military which are non-contributory and they are taxed at source in UK and you cannot get round that.

The latter do have the advantage though that they are totally ignored by the Spanish taxman and you can export your State retirement pension gross so you get a personal allowance in each country set against the respective pension. In addition because the Government pension is ignored you are not pushed into a higher Spanish tax bracket by adding the two together.

Regards, :confused:

John.
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Re: Tax on pensions? old thread
 

It is available to tax residents buying their permanent residence.

You can also claim the same amount against the actual purchase/cost of reformation if you do not have a mortgage.

If you are building your own house you can claim it every year for up to 3 years.

If you are waiting to buy/build your house you can open a special savings account at your bank and any payments into it are given the same relief, again for up to 3 years. it's called a "Cuenta Vivienda".

If you are taxed seperately you can claim back over 2700 for each of the 3 years and for the ongoing mortgage thereafter.

As I said before, it is 15% of upto 9016 Euros. In the first 2 years of the mortgage it can be slightly higher.

Either you are a non resident or have a poor lawyer!:)

I speak from first hand experience.

Re: Tax on pensions? old thread
 

Hmmm,, know how you feel , as I have a Military Pension, a Company Pension, and soon to get my State pension, on top of that I have a company in Spain, so all in my assesoria, is making a fortune out of me,!!, In truth I have given up trying to understand whats going on, and just keep demanding less payments from my Assesoria, but I'm sure there is more to grab, if I ever get to grips with it!!:eek:

Re: Tax on pensions? old thread
 

I do have a mortgage, and it will be my only residence, so should be ok. How do I become tax resident? Is that the same as applying for 'residencia'? I won't be moving until May this year, so not sure whether I should set the ball in motion now, if that is possible, or will have to wait until I move. Are these issues something that my lawyer should advise me about, or do I need to look elsewhere? Sorry for asking so many questions, just need to be pointed in the right direction. :blink:

Re: Tax on pensions? old thread
 

Hi Brenda Teather,

You do not need to do anything to become Tax resident just be in Spain for more than 183 days in any Spanish Tax year (01/01/2007----01/01/2008).

This is not good advice you must be proactive to avoid being taxed in both UK and Spain and to get the benefit of all your allowances from day one. It is not the same as residencia which you do not need to have now we are in the EU but is nice to have anyway since it makes dealing with the Spanish system easier. Get on the Padron asap and have your E106/E121 before you leave UK.

I would suggest starting now by sorting out leaving Uk tax free. A very important point is to take any tax free pension lump sum before you leave UK because in Spain it would not be tax free. you should then arrange with your pension payer to be paid gross direct into your Spanish bank in Euro (if they will do the exchange they usually get a good rate because they are changing so much for others who have fled these shore before).

Next get your State pension paid gross again in Euro int your Spanish account ( visit the DWP website for details). Then take a look at which Spanish account you hold. Grupo Banco Popular have an account specially designed for those in receipt of pensions which has no charges for transactions and has other benefits too.

Lastly choose your time to leave UK carefully you get a full years allowances after April 6th so any income in the new tax year below the personal allowance level can be taken out of UK with tax reclaimed.

Regards, ;)

John.
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Re: Tax on pensions? old thread
 

As John and Kath have said, you become tax resident by default after you have spent 183 days here in one year.

You may wish to speed up that process so that you can get your UK income paid gross. To do this you should go to the nearest Spanish Tax office and get a tax reference number and get onto the system. You won't have to pay any tax until next year but you need this reference number for the UK Revenue to claim exemption from tax under the dual taxation agreement with Spain.

The actual form you will need to submit to the Revenue is here

http://www.hmrc.gov.uk/cnr/form_spain.htm

These is a lot of information about leaving the UK here

http://www.hmrc.gov.uk/pensioners/taxwhenleaving.htm#1

Your lawyer is not necessarily the best person to speak to about tax - that's not his job. You should be able to find a good Gestor who can sort out the tax for you.

As for the mortgage, the only difficulty I can forsee is the fact that you already own the property and, by definition, it is not currently your primary residence as you are non resident. When you become resident it will be your home so it should then be possible to claim the mortgage. If it not a Spanish mortgage there could be complications.

I was in the position of buying/building as a resident with no property in Spain so I cannot advise on this first hand. Again, a good gestor will know and the people in the tax office are usually very helpful.

Re: Tax on pensions? old thread
 

This will be our only residence and for the last 17 months have been living in rented accomodation in Spain and have been on the padron since then. My Crown pension, as I underatand, has to be taxed at source in the UK so I haven't registered into the Spanish tax system. From what I understand I am a fiscal tax resident due to the time factor so I should be eligable for tax relief on my mortgage payments. I guess a trip to the Gestoria is on the cards to sort it all out.

Re: Tax on pensions? old thread
 

Hi Fred and Brenda,

I have been told that your mortgage can be with any institution UK or Spanish Euro or £ but it must be against the Spanish property and registered by the notary and the Land Registry to enable you to claim allowances against Spanish tax.

Regards,

John.

Re: Tax on pensions? old thread
 

Hi Fred James, and everyone. Thanks so much for this information. I have started the process of phoning Inland Revenue to organise the payment of my pension gross, for taxation in Spain, and just have to find out from my pension office whether my pension will be 'government' or 'non government'. The 1350 euros you mention, is that a yearly sum? My yearly mortgage repayments at the moment will be 3,600 euros. Do you mean that I can claim 15% of that? Would be 540 euros. I think I might opt to be taxed in UK. At least I would get my personal allowance before I lost anything. I've got a feeling that I may have misunderstood what you were saying. :confused:

Re: Tax on pensions? old thread
 

Yes, I am talking about yearly mortgage payments.

You are correct, it is 15% of 3600 (it can be slightly more in the first 2 years). Remember that this is a deduction from the tax total due.

You do not have the option of where you pay your tax. If you live in Spain it will be taxed in Spain (Crown pensions being the exception).

Re: Tax on pensions? old thread
 

So will I have to pay 25% on all but 540 euros? :blink:

Re: Tax on pensions? old thread
 

No, you will get a set of personal allowances broadly similar to what you would get in the UK.

The personal allowance is 5050 with an additional 900 if over 65.

There is a wage earners allowance (this also applies to pensions) of between 2600 and 4000 depending on income (the higher the income the lower the allowance).

The first 17360 of taxable income is taxed at 24% and the next 15000 is taxed at 28%.

The 25% figure you mention is the non resident tax rate applied to the notional letting value of the property.

If your income is less than 9000 you do not have to submit a tax return but it is wise to do so (no tax due) so that you can be sure that you can prove that you are tax resident. This can be important with regard to CGT and IHT in the future.

Re: Tax on pensions? old thread
 

Phew! that's a relief. Thanks Fred. :)

Sorry for so many questions, but this one does spring to mind. How would my pension pot actually get to Spain, I guess my question is more to do with exchange rates. Eg Do you know if pension pots would be transferred to Spain month by month, or are they moved totally to some sort of investment organisation in Spain and paid out from there? If the latter is the case then I guess exchange rates won't be an issue. I think I need to check with my pensions people whether or not I could take more of it as a lump sum, and any way I can make the most of what there is, although I understand that off shore investment possibilities are being tightened up. :) Thanks again.

Re: Tax on pensions? old thread
 

No, the pension fund is converted into an annuity and a lump sum in the UK and benefits paid in Sterling in the UK.

As John and Kath has said, do this before becoming tax resident in Spain or the lump sum could be taxed.

Most pension companies will transfer the monthy pension to Spain automaticaly. Sometimes it is free, sometime a small charge is made - my wife's pension provider charges £3 a month. The exchange rate used is close to the interbank rate and is as good as you will get from any other currency company. There is no charge for transferring the UK State pension and the rates are very good.

Spanish banks cannot charge a commission on pension payments whereas if you transfer it yourself you may have to pay charges depending on how you do it.

Re: Tax on pensions? old thread
 

Thanks, I will do that. :)

Re: Tax on pensions? old thread
 

Hi Brenda Teather,

Did you not say earlier that your pension was an NHS one in which case I think you will find that it is regarded as non governmental and can be paid gross in UK on a monthly basis. I suppose it is up to each NHS Trust to decide if they will make the conversion to € and transfer it to Spain so get on to them early. Do make sure you get your lump sum in Uk before you go!

It is rude to ask a lady her age but if you are getting a state old age pension that can definitelye paid gross converted by the DWP and transferred to Spain at the best rates and lowest cost. So get on to that now to be ready for the move.

Regards,

John.
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Re: Tax on pensions? old thread
 

Hi John, I've got another three years to go, so not quite there yet. I'll be phoning my pensions office today regarding transferring gross. Thanks very much. :)

Re: Tax on pensions? old thread
 

Hi Solarwizz,

I have been waiting for someone with greater knowledge than me to comment on this. (where's Fred when you need him)

I like Fred am going to build my own Villa when I have finally signed my Escritura and of course want to be on top of all tax avoidance measures.

I also have a government pension (MoD) and a small private pension and will in a couple of years qualify for a full State Pension.

I missed out on a military pension because 25yrs TA service is not counted unlike the Americans!

The best would be if you could reclaim Vat (at 16% its a lot of money) but I cannot find a definitive answer. In UK there is a special dispensation for Self-Builders to make a one off claim right at the end when all is complete which all helps with the furnishing.

So what does your statement mean?

Regards, :confused:

John.
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Re: Tax on pensions? old thread
 

I think he was referring to my comment that mortgage tax relief in Spain is based on the actual monthly pepayment which includes the capital element of the payment.

When mortgage relief was allowed in the UK , it was only on the interest element.

The Spanish taxman is only concerned with your "Investment in your principal house" and this can, as I have already said, include almost any costs up to the annual limit of €9016.

Re: Tax on pensions? old thread
 

Could I make a claim against reform work I am having done, as well as mortgage repaymants?

Re: Tax on pensions? old thread
 

Subject to certain rules, yes, reformations can be claimed.

Remember that you must have been tax resident at the time the were done to claim these allowances. Tax residency in Spain is on a yearly basis. If you become tax resident in September you are tax resident for the whole year and tax is payable on the whole year's income, similarly allowances apply for the whole year.

Re: Tax on pensions? old thread
 

This is a problem with self builds in Spain. Only companies can reclaim IVA and I am not aware of any special dispensations - probably because when the locals self build they manage not to pay any IVA anyway!

If you do it the "normal" way, the builder who you employ, will only be charged IVA at 7% and that will be passed on to you. In reality probably about half of that can be "lost" - such is the black economy in Spain.

Re: Tax on pensions? old thread
 

I used to find, no ticket for materials no iva when I got stuff.