britishbull

Seems to be a lot of contradictory info on how UK property is taxed when in resident in the Spain.

My plan is to rent on my UK property and declare that as rental income in the UK, which would be set against my UK personal allowance, so actual tax would be minimal or zero.

My other income is from savings offshore, about 10,000 Euro and some internet income which come in as ebook royalties from USA around 3000 Euro (after tax paid in USA) which I would declare in Spain where I would be resident, but not sure how this would be taxed and whether I would still get the Spanish personal allowance (circa 5000 euro) and whether I would have to pay the social security payment of approx 250 euro a month? I am hoping I would only have to pay tax on 5000 euro in Spain plus local property tax - or basically what I am paying in council tax in the UK now (which my renter would pay).

But there also seems to be some extra personal allowances and some property expenditure when buying SPanish property that you can put against tax.

I also have a UK based SIPP but won't be cashing that in for a decade or more.

snikpoh

This is certainly a very complex area with many varying views on the best road to take - my advice would be to see a GOOD international tax expert.


In the mean time .... I seem to recall that as a Spanish resident, any UK rental income has to be paid to you net of tax. However, you can ask for this to be paid gross and then you make the necessary tax declarations in UK.

You then MUST (legally) fill in tax forms in Spain declaring any world-wide income. This will then be taxed in Spain but you can offset any tax paid in UK.

Another approach is to put all the UK properties into a Limited company or even an SL. This would have the, potential, additional advantage when inheritance tax needs to be considered. (For me, this approach is fraught with problems and costs but there are those that believe it's the best option.)


As I say, it's quite complex due to the way tax years are calculated and because of the variety of ways that one can approach the issue - get proper help.

britishbull

But I have read on here that both SPanish and UK accountants DON'T declare income that is taxed in the other country because the treaty says it can't be taxed in both countries (my accountant used to do this when I was in Thailand (the revenue told him to do that so their systems did not get confused), only declaring UK sourced income and I carried on with that when he retired but made a note that I had not declared it in the notes section of the UK tax return (and it was never queried). I won't be consulting an international tax accountant unless absolutely necessary as they cost crazy money in relation to my potential tax liability.

Fred James

To the best of my knowledge the only UK income that can safely be ignored in Spain is a UK government pension which is always taxed in the UK.

Even then some experts consider that it should be declared in Spain and the UK tax deducted from the Spanish tax due however I haven't come across anyone that does this.

There are circumstances when tax has to be paid in the UK but it also has to be declared in Spain as part of your world wide income but the tax is credited back so you don't pay it twice.

snikpoh

I think that you'll find that what the treaty says is that you will not have to pay two lots of tax for the same situation.

This is exactly what Fred and I are saying, it may initially look as though you might have to pay the tax twice, but it is then credited back on your Spanish tax form - the net result is only paying tax on the income once.


The rules on this are quite simple - all world-wide tax MUST be declared in Spain.

What is not so clear are the myriad of ways to reduce your liability - hence the need for someone to assist (and not just a mate from your local pub or even people on a forum).

missile

You cannot be tax resident in two countries. Thus you cannot legally declare some income in spain and some in UK and benefit from allowances in both.

Fred James

You cannot be tax resident in both countries but you can pay tax in both countries and get two sets of personal allowances - UK government pensions being the obvious example.

If you work in the UK while tax resident in Spain you will pay tax in the UK irrespective of the fact that you are not UK tax resident. You will get UK allowances but still have to pay tax in Spain although you can deduct the tax paid in the UK.

missile

OPs post is not about pensions / working in the UK.
Are you suggesting OP can legally be tax resident in spain, choose to declare rental income in UK, have it offset against his tax allowance in the UK and not declare the income on his spanish return?

britishbull

"Are you suggesting OP can legally be tax resident in spain, choose to declare rental income in UK, have it offset against his tax allowance in the UK and not declare the income on his spanish return?"

Yes, that is what I was hoping as the now generous personal allowance in the UK would cover all my rental income (you definitely do get the personal allowance as this was what I was doing in Thailand).

There was a post where it was suggested that you can chose which country you wanted the rental income to be taxed and another that suggested it had to be taxed in the UK because it arose in the UK (in this case it would be taxed but no tax to pay because of the personal allowance) but I suspect that it would taxed first in the UK then taxed in SPain, if so I will not be moving to SPain as the tax levels would be too high for my relatively small income.

Fred James

Income from property rented in the UK will always be taxed in the UK and UK tax allowances will apply (to EEA residents).

The same income will be taxed in Spain and any tax paid in the UK will be deducted from the Spanish tax due.

That's what it says in the UK-Spain double taxation treaty.

The rental income (so long as it isn't a holiday let) is taxed very favourably in Spain as only 50% is taxable and the deductions are generous.

CapnBilly

You can be resident for tax purposes in both countries

'It is possible to be resident in the UK under our tax rules and at the same time be resident in another country under that country’s tax rules. This is sometimes referred to as ‘dual residence’ Source HMRC 6 (Section 2),

BUT under these circumstances the Double Taxation Agreement is applied. There is a form to help you determine your tax status

However, in terms of the OP

10.13.1 Income from property in the UK
If you have profits from letting property situated in the UK, they are liable to
tax in the UK, even if you are not resident here. Retention of tax from UK
property income is dealt with under the Non­Resident Landlord Scheme. If
your usual place of abode is outside the UK and:
• you receive rental income direct from the tenant, the tenant must first deduct
tax at the basic rate and pay it to HMRC, or
• a letting agent collects the rental income for you, the letting agent must
deduct tax at the basic rate from the income received, less any allowable
expenses paid on your behalf.
Credit for any tax deducted in this way will be given against your UK Income
Tax liability when you complete a Self Assessment tax return.
You can apply to Personal Tax International in Liverpool for approval to have
your property income paid without tax being deducted. You can only apply for
this approval if you undertake to comply with all your UK tax obligations and:
• your UK tax affairs are up to date, or
• you have never had any UK tax obligations, or
• you do not expect to be liable to UK Income Tax. - Source HMRC 6

This is covered by Article 6 of the Double Taxation Agreement.
http://www.hmrc.gov.uk/manuals/dtmanual/DT17605.htm

If you receive investment income in the UK, then you will be entitled to the personal allowance to offset against the income, or you can apply for the rent to be paid gross. See Non Resident Landlord Scheme.

http://www.hmrc.gov.uk/international/nr-landlords.htm#2

HOWEVER, irrespective of which you choose, you are still liable for Spanish tax on the income you receive, even though you have already paid tax, BUT, you will be able to offset the tax already paid, and of course you would also receive the Spanish allowances. The only circumstances when you wouldn't be liable for Spanish tax, are, as Fred has already mentioned, UK government pensions, or other income, which can only be taxed in the UK. Unfortunately, this is not one of them.

Fred James

I think I have answered the rental question but the offshore income would be liable for tax in Spain at the savings rate which is 21% on the first €6000 and 25% on the rest up to 25k and 27% thereafter.

The personal allowance is €5151. There is also up to €4080 as an earned income allowance but that would not apply to savings income.

You can claim mortgage costs against tax up to a maximum amount of €9015 per year and you get a straight 15% deduction - €1352 off your tax bill.

If you rent property as your main home there may be allowances depending on your income.

As for the royalties, that will depend on the US/Spain treaty which is not an area I have any experience of.

Chiclanagir

My daughter is a published author with earnings mainly from the US and has 30% of the earnings deducted for US tax. However she is in the process of claiming this back as there is a double taxation treaty between the US and the UK, so presumably it could apply to Spain as well.

On another point if your UK rental income falls below the personal allowance in the UK and then you have to declare it in Spain how can any tax be deducted as you won´t have paid any?

Fred James

That would seem likely - if I get time I will try and have a look at the treaty.

Yes, if you don't end up paying tax on the UK rental because of the allowances you don't have any tax to deduct. The downside is that if you have already used up your Spanish allowances on your other income then you will pay Spanish tax on the UK rental income in full, although, as I said you only pay on 50% of it and there are loads of deductions.

britishbull

Thanks for the clarification (from what has been posted elsewhere it seems that some SPanish accountants aren't aware of the way it works), suppose it ain't too bad if you can half the rental income and take off a lot of allowances and maybe wrangle a refund from the USA income which would then be earned income and have another allowance to set against it but that would maybe make me liable for social security payments or is that only on earned income in Spain? BTW, in case anyone is wondering I paid a huge amount of tax when I was in the UK and earning serious money (fair enough) but now am just ambling along and trying to preserve my capital whilst living an amusing life on not a lot of money.