My other half and I are planning to move to Spain next year but we might have a finance issue for which we would love to get some advice.

We have a limited company and pay ourselves a small salary (PAYE tax threshold) and the maximum net dividend payment that can be made without paying higher rate tax.

The total comes to approx £35000 each.

But once we live in Spain and be resident, it looks like we will be obligated to declare our incomes to the Spanish authorities and pay their rate of tax on the whole £35000 at the rate of 37%

Is this correct?

I do know that there is some type of double taxation treaty but since hardly no tax is paid on that amount in the UK will we be facing a nice tax bill in Spain?

If it is the case would it be worth while to make sure we stayed resident in the UK for tax purposes?


Many thanks for your help

If you are in Spain for more than six months you will be deemed tax resident and all your worldwide assets will be taxed by Spain .

If you are tax resident in Spain you will pay Spanish tax on those dividends and salaries.

Have a look at http://www.hmrc.gov.uk/manuals/dtmanual/DT17609.htm

Your 37% figure does not take into account the personal allowances and deductions. 37% is the tax rate on marginal incomes over €33k.

The first €17k of net income is taxed at 24% and the next €15k at 28%.

You can declare separately and get the allowances each which amount to €7803 if you are under 65 with no dependent children.

You don't have a choice as to which country you are deemed to be tax resident - it depends on a number of circumstances. It is possible to be tax resident in both countries and then a complicated set of rules come into play.

If you spend more than 183 days in one calendar year you will be probably be classed at tax resident in Spain unless HMRC apply their rules (which are currently changing) but even then you will probably have to submit a Spanish tax return and claim back the tax paid in the UK.

Do not think of spain as a tax haven. The authorities here are not as lax as you may have been led to believe by bar room gossip. A friend of mine who works in UK and tax resident in spain, was shocked at the tax bill he received this year.

I would suggest you get some expert advice. Your UK accountant is unlikely to know. Good luck

Thank you your replies.

So if I understand it correctly

We actually both earn £35000 (small salary (PAYE tax threshold) and the maximum net dividend payment that can be made without paying higher rate tax)

If I take one of us for the example

£35000 into euros = approx. 40000 Euros

€40000 – allowance of €7803 = €32197

€17000 @ 24% = €4080

€15197 @ 28% = €4255

Total tax = €8335 per person

Does this seem accurate?

It's approximately right.

If it was UK tax it would be right but Spain only allows the allowance against the basic tax rate which makes the calculations a bit more complicated but it's in the right ballpark.

HC solicitors in Peterborough www.hcsolicitors.co.uk tel 01733 882800 email [email protected]
have a Spanish Dept with Spanish solicitors covering the whole gamut of Spanish legal
have used them and are very helpful

hth
rgds

I now see that it would be better for us to keep our little flat in the uk and spend the time allowed in Spain ( 182 days ), this way we would be €16000 better off!

Does this seem correct?

If the tax in Spain is 2x€8000=€16000 and you say you would be €16000 better of if taxed in the UK that says that your UK tax would be zero.

That seems unlikely! Or am I missing something?

Yes, well dividends are taxable anyway at year end (well, thats how we used to do it) , so they are saying salary on PAYE and dividends separately, but all is subject to tax at one level or another.

http://www.direct.gov.uk/en/MoneyTax...nts/DG_4016453

says that you will only pay 10% on the dividend.

whilst it may mean a (small) hit on your lifestyles I am sure you can ajust your payments to stay on the right side of the tax break

perhaps you will be able to make up the difference by claiming more on expenses, I would imagine you are already claiming flights to Spain to visit potential customers and authorities such as local Chamber of Commerce along with associated expenditure

We both earn a low wage of approx £5500 each which attracts no taxes and approx £30000 of dividends income below the £35,000 basic rate tax limit.
(no tax to pay on dividend income because the tax liability is 10 per cent - the same amount as the tax credit)

But obviously that would not apply in Spain.

I'm not sure I understand .... Dividends attract tax do they not? You're saying you take £30,000 of dividends but pay no tax on them?

I can hear the taxmans ears flapping from here.
There was no way I could take 60,000 quid out of my business tax free.

Nor me, I would love to know how?