Compost Mentis

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.

Fred James

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).

Compost Mentis

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

Fred James

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.

Compost Mentis

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.

Fred James

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.

Compost Mentis

Thanks, I will do that.

EsuriJohn

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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Compost Mentis

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.

EsuriJohn

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,

John.
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Fred James

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.

Compost Mentis

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

Fred James

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.

Fred James

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.

jdr

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