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UK income tax rules after becoming spanish resident

UK income tax rules after becoming spanish resident

Old Feb 27th 2013, 9:54 am
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Default UK income tax rules after becoming spanish resident

I agree that the simple answer is to go see an accountant but it will be a lot easier with a bit of background knowledge. A UK resident pays UK income tax on their UK income AFTER deduction of their basic tax free allowance, therefore say, a £ 10,000 annual pension will have about £ 8000 Knocked off and tax will be calculated on the remaining £ 2000 or so. If that person then moves to Spain and becomes a Spanish resident (and therefore obliged to declare this pension to the Spanish tax authorities), will their UK tax authorites still permit the deduction of the tax free allowance when calculating the liability to UK income tax? Secondly, should an expat spainish resident sell assets in the UK, willl they still get the standard £ 10,600 capital gains tax free allowance?
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Old Feb 27th 2013, 11:41 am
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Default Re: UK income tax rules after becoming spanish resident

When you move to Spain you can arrange with HMRC for your pension to be paid gross in the UK (unless it is a UK government pension which will remain taxed in the UK). You will just be taxed in Spain and get Spanish personal allowances.

If a pension remains taxed in the UK you will get UK allowances against it. It will also get taxed in Spain and Spanish allowances given. You can then claim the UK tax against the Spanish tax if applicable but it is preferable to arrange for it all to be taxed in Spain then you will no longer have to deal with HMRC.

Non UK residents do not normally pay UK CGT on UK assets but there are exceptions. If you are liable for UK CGT then you would get the allowance.

UK gains are taxable in Spain but again any tax paid in the UK can be offset.

Last edited by Fred James; Feb 27th 2013 at 3:37 pm.
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Old Feb 27th 2013, 1:50 pm
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Default Re: UK income tax rules after becoming spanish resident

Originally Posted by mikeglover
I agree that the simple answer is to go see an accountant but it will be a lot easier with a bit of background knowledge. A UK resident pays UK income tax on their UK income AFTER deduction of their basic tax free allowance, therefore say, a £ 10,000 annual pension will have about £ 8000 Knocked off and tax will be calculated on the remaining £ 2000 or so. If that person then moves to Spain and becomes a Spanish resident (and therefore obliged to declare this pension to the Spanish tax authorities), will their UK tax authorites still permit the deduction of the tax free allowance when calculating the liability to UK income tax? Secondly, should an expat spainish resident sell assets in the UK, willl they still get the standard £ 10,600 capital gains tax free allowance?
that isnt right Mike
when reaching 65 your personal allowance rises from £8,105 to £10,500 so anyone with a £10,000 annual pension would not pay any UK tax on it.
http://www.hmrc.gov.uk/incometax/personal-allow.htm

As Mitzyboy has emphasised many many times before here - pension is income and all income is subject to Income Tax at the relevent rate after taking into account the personal allowance.

If Cold Weather and/or Winter Fuel Payment is paid then that is a non-taxable item so would not affect any pension or taxation regime.
http://www.hmrc.gov.uk/manuals/eimanual/eim76100.htm

hth
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Old Feb 27th 2013, 4:04 pm
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Default Re: UK income tax rules after becoming spanish resident

Just so i can do a few calculations - what is the current spanish income tax free allowance? and what is the basic rate of income tax?
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Old Feb 27th 2013, 4:16 pm
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Default Re: UK income tax rules after becoming spanish resident

Originally Posted by Fred James
When you move to Spain you can arrange with HMRC for your pension to be paid gross in the UK (unless it is a UK government pension which will remain taxed in the UK). You will just be taxed in Spain and get Spanish personal allowances.

If a pension remains taxed in the UK you will get UK allowances against it. It will also get taxed in Spain and Spanish allowances given. You can then claim the UK tax against the Spanish tax if applicable but it is preferable to arrange for it all to be taxed in Spain then you will no longer have to deal with HMRC.

Non UK residents do not normally pay UK CGT on UK assets but there are exceptions. If you are liable for UK CGT then you would get the allowance.

UK gains are taxable in Spain but again any tax paid in the UK can be offset.
Many thanks for the info Fred. On the capital gains bit though, does the bit about the non resident not paying capital gains tax only apply if they were non resident when they first bought the asset ? otherwise, a buy to let landlord who had stacked up a tidy gain while resident in the UK could go and get spanish residency and then sell their UK property (albeit they would then have to pay spanish capital gains tax but then the uk revenue wold lose a big chunk of tax on a gain that had been made during the person's uk residence). Or, would the tax offices in the 2 countries calculate pro rata which parts of the gain arose while the person was resident in each of the 2 countries and apply there own capital gains tax rules to their appropriate part of the overall gain? The uk capital gains tax rules can be quite generous for a landlord if they lived in the property for part of the period of ownership but i dont know what the spanish rules are. Sorry about the length of the message but wondering whether i might be better or not to sell up before coming out here for good
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Old Feb 27th 2013, 4:47 pm
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Default Re: UK income tax rules after becoming spanish resident

As for your question about rates and allowances you get a personal allowance is 5151. If you are over 65 you get an additional 918. This goes up to 2040 at 75.

You also get a general allowance of 4080 – 2652 (sliding scale on incomes from 9180 – 13260)

The base tax rate on net incomes up to 17707 is 24.75%

I'm not au fait with UK CGT but I think you only make the gain in the year that you dispose of the asset so when you bought it shouldn't affect it (apart from any indexation allowances for previous years).

I also think there is a timescale involved that to avoid the UK CGT you have to have been non resident for 5 years.

I suggest you check this out with a UK tax expert.
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Old Feb 28th 2013, 8:15 am
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Default Re: UK income tax rules after becoming spanish resident

Originally Posted by mikeglover
Many thanks for the info Fred. On the capital gains bit though, does the bit about the non resident not paying capital gains tax only apply if they were non resident when they first bought the asset ? otherwise, a buy to let landlord who had stacked up a tidy gain while resident in the UK could go and get spanish residency and then sell their UK property (albeit they would then have to pay spanish capital gains tax but then the uk revenue wold lose a big chunk of tax on a gain that had been made during the person's uk residence). Or, would the tax offices in the 2 countries calculate pro rata which parts of the gain arose while the person was resident in each of the 2 countries and apply there own capital gains tax rules to their appropriate part of the overall gain? The uk capital gains tax rules can be quite generous for a landlord if they lived in the property for part of the period of ownership but i dont know what the spanish rules are. Sorry about the length of the message but wondering whether i might be better or not to sell up before coming out here for good
I believe the UK system is more lenient (honest ) than Spain's.
So your property in the UK may be a (currently) depreciating asset based on its value of say 4-5 years ago.
You need to have a big spreadsheet for this IMHO, as it may be more advantageous to retain the asset and let it as letting income is generally stable if not rising. The income is then taxed under the Non-Resident Landlord scheme http://www.hmrc.gov.uk/international/nr-landlords.htm
Subject to the rules, this can allow you to either be taxed in the UK iaw your normal tax regime or to receive that income tax-free, which would mean paying taxation on that income in Spain. (Just remember that from time to time Spain and UK tax authorities speak to each other.)

It all depends on which way is most financially advantageous to you - which is why the spreadsheet has to be large.
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Old Feb 28th 2013, 8:59 am
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Default Re: UK income tax rules after becoming spanish resident

Originally Posted by Domino
I believe the UK system is more lenient (honest ) than Spain's.
So your property in the UK may be a (currently) depreciating asset based on its value of say 4-5 years ago.
You need to have a big spreadsheet for this IMHO, as it may be more advantageous to retain the asset and let it as letting income is generally stable if not rising. The income is then taxed under the Non-Resident Landlord scheme http://www.hmrc.gov.uk/international/nr-landlords.htm
Subject to the rules, this can allow you to either be taxed in the UK iaw your normal tax regime or to receive that income tax-free, which would mean paying taxation on that income in Spain. (Just remember that from time to time Spain and UK tax authorities speak to each other.)

It all depends on which way is most financially advantageous to you - which is why the spreadsheet has to be large.
You still have to pay tax on rental income in the UK, even if you receive it gross. You have to complete a self assessment. In addition, you have to declare it in Spain as well, although their allowances are much more generous. You are only likely to have pay more tax in Spain if you only have rental income in the UK, and you gain the benefit of a personal allowance, and you have used your personal allowance in Spain.
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Old Jan 28th 2014, 3:23 pm
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Default Re: UK income tax rules after becoming spanish resident

OK, so now I am worried that the laws have changed here in Spain. Last year I did the Modelo 720 and my tax increased due to the fact that I own a property in the UK as well as a couple in Spain. THIS YEAR, the Spanish Tax Authority want to know how much I receive in rent and how much costs I have against the UK property. I always understood that if the income was on property in the UK, the tax MUST be paid in the UK. I am happy with that system, because I have a tax allowance in the UK, though I still have tax to pay on the income.

Prior to the Modelo 720, I had no reason to mention anything to the Spanish Tax Authority regarding my property in the UK.

I always pay my tax dues, but don't like to be screwed
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Old Jan 28th 2014, 5:10 pm
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Default Re: UK income tax rules after becoming spanish resident

The laws haven't changed in Spain. It has always been the case, as I posted just above your post nearly a year ago. I am surprised that you did not declare the rental income last year, after you had reported your property on the Modelo 720. I personally gave a number of warnings to do that, as did Fred, and others. If you had, you might, just might, have been okay. If you use a gestor you have not been well advised.

Unfortunately they know you have the assets, and now long you have had them, so they can also go back 4 years, so you need to prepare yourself. Although it's no consolation, I think yours will be the first of many similar posts.

Last edited by CapnBilly; Jan 28th 2014 at 6:01 pm.
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Old Jan 28th 2014, 5:33 pm
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Default Re: UK income tax rules after becoming spanish resident

I do hope that I have not received bad advice, I have paid good money to a large company of solicitors and tax advisors in Torrevieja, called Abaco.

They have been aware of rental income both in the UK and here in Spain, I have always paid tax on the spanish rental income in Spain, with very little deductions, as it is a holiday let and to the UK tax authority on my UK rental income. They told me that, as the income in the UK is earned off property there, it has to be paid in the UK.

Whereas interest in the bank was paid to the Spanish tax authority and claimed back from the UK Authority, as they took it at source.
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Old Jan 28th 2014, 5:37 pm
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Default Re: UK income tax rules after becoming spanish resident

I find it strange that people cannot understand that if you are a tax resident in Spain you pay tax on your WORLDWIDE INCOME (including UK rental income).

The only significant exception are UK government pensions and they now have to be declared on your Spanish tax declaration.

What's so complicated about that?

Last edited by Fred James; Jan 28th 2014 at 5:39 pm.
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Old Jan 28th 2014, 5:45 pm
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Default Re: UK income tax rules after becoming spanish resident

Originally Posted by Fred James
I find it strange that people cannot understand that if you are a tax resident in Spain you pay tax on your WORLDWIDE INCOME (including UK rental income).

What's so complicated about that?

Nothing.... Except when you pay qualified accountants and solicitors that tell you it does not include income from a property based in another country!! This was the same information given to me by one of the biggest solicitor companies in the UK, when I sold my business and also by Abaco here in Spain. The head of their head of tax is qualified both here and in the UK, I kinda hoped the money I was paying them, was for good advice.

Also HMRC granted me non resident Landlord approval, so that I could pay the tax directly to them on an annual basis, I assumed they were aware of the double taxation scheme
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Old Jan 28th 2014, 6:06 pm
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Default Re: UK income tax rules after becoming spanish resident

Unfortunately my experience of professional advisors is that they advise people incorrectly on this issue. If you read the DTA, it's pretty clear what you should do. The worst advice is normally that you can offset tax you have paid in the UK, which you can , but only providing the income is taxable in both countries I.e rental income. If it's only taxable in one country I.e private pension payments, you have to pay the full tax due and claim it back.
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Old Jan 28th 2014, 6:16 pm
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Default Re: UK income tax rules after becoming spanish resident

The DTA says:-

Income derived by a resident of a Contracting State from immovable property situated in the other Contracting State may be taxed in that other state.

The key word here is "may". This means that HMRC can tax the rental but it does not say that Hacienda cannot also tax it.

If it was exclusive to the UK ( such as UK government pensions) the wording would be different and it would say that the rental income would ONLY be taxed in the other state.

It's really sad that all these expensive lawyers and accountants don't seem able to read and understand the DTA.
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