Taxman investigates Pensions from outside Spain

As most residents will know, but some are reluctant to accept, all worldwide income, including OAP’s paid by UK,  must be declared in Spain, except for those few exemptions as set out in the various Double Taxation Agreements (i.e. for UK Government employee pensions).  There is no choice, one cannot ‘choose’ where to pay, say in UK.

 

Quote from Business over Tapas:-

'The tax agency (AEAT) has opened 27,696 inspections to retired foreign residents in Spain and to returning retirees who have not filed their pension information from a foreign country, although the Minister of Finance, Cristóbal Montoro, says that his department is "not treating them as fraudsters" and that they are being studied on a "case to case basis" to avoid unnecessary damage to their income...'. from Europa Press at :- 

 

http://www.europapress.es/economia/laboral-00346/noticia-economia-agencia-tributaria-abierto-27696-inspecciones-jubilados-retornados-no-declarar-pension-20140514101156.html

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Propaganda, scare mongering comes to mind. The average UK state pension for a married couple barely reaches the personal tax allowances in Spain. Government pensions are taxed at source and not taxable in Spain.

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The average UK state pension for a married couple barely reaches the personal tax allowances in Spain.

That does not mean that one is not required to make a tax declaration.   People get confused by the Spanish rule, i.e. that if the income is taxed at source in Spain and is not  from  more than ONE source then it may be that one is not required make a Tax Return.  But UK pensions do not come under that rule.

 As said, ‘Some are reluctant to accept’ the fact. 

 

Government pensions are taxed at source and not taxable in Spain.

Glad you agree,  as that is precisely what I said.    Quote:   Except for those few exemptions as set out in the various Double Taxation Agreements (i.e. for UK Government employee pensions).  But having said that, what is taxable and how,  varies with the agrreement between Spain and the relevant country.

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There is good factual information here --http://www.advoco.es/hot-topics/102-spanish-income-tax-rates.html

Just as in the UK, Spain has a system of taxation at source which mean a lot of people never fill in a tax return. If you have a salary and some bank interest which have both been taxed at source by your employer and bank respectively, you will already have paid your tax and will not have to do a return provided the combined income does not take you into higher tax rates which would mean a supplementary tax bill has to be calculated.

The cut-off point is 22.000€ in any one year which applies to income from employment and pensions, including those from overseas. This limit falls to 11.200€ under these circumstances:

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In the case of the 22,000 threshold it does not apply to anyone eligible for the dual taxation treaty between UK and Spain, So not expats!
In the case of Government pensions, although they are taxed in UK, they still have to be declared in Spain. In the past they did not exist,as far as the Hacienda was concerned. That is not the case now.

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I see basically, once again, you agree with what I said.

This is from the web page you quoted:-  Usually being in receipt of a pension from your former country of residence will require you to make a Spanish declaration, even if tax has been deducted at source before you received it.

 If as you said, it is a UK Government Employee Pension, it is ONLY taxable at source, in which case it is ignored in Spain.  If it is any other UK pension then it is only taxable in Spain, so tax would not have been deducted at source.  Of course, as I said, that part of the quote might refer to those from other countries, other than UK, which will have different rules, as per the Double Taxation Agreement with Spain.

 

Nevertheless, the AEAT (tax office) it would appear are chasing those who should have declared.  Those who should not have,  are not affected by the info.

 

This message was last edited by johnzx on 22/05/2014.

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I'm not having a go at you johnz.

This is from the web page you quoted:-  Usually being in receipt of a pension from your former country of residence will require you to make a Spanish declaration, even if tax has been deducted at source before you received it.

My point was no obligation to declare if the taxable pension income in Spain is below the tax thresholds for your particular status. The UK single persons state pension is £5881 or €7233.

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Johnzx-
Apparently there is a new DTA this year, signed, awaiting ratification, allowing Spain to take your Government pension into account when working out your tax rate in Spain, even though this pension is not taxed in Spain.
I do not know any more, but perhaps an accountant on the forum might like to comment?

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Legal tip 907. Obligation of Information of Goods and Rights Located Abroad 
06 March 2013 @ 13:53 
 

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This Tip deals with Asset Declaration, not pensions paid in another country to people who are tax resident in Spain

 

i.e not "Taxman investigates Pensions from outside Spain"

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Ups- Apologies. You are right John.

The intended post was this one:

This below is the applicable norm from 2014, June 12th. Provisions below are part of the Last Anti-Double Imposition bilateral agreement signed between Spain and Uk in March 2013.

It clearly depends on if your pension is private or public.

Cheers

Maria


 

Article 17

Pensions

Notwithstanding the provisions of paragraph 2 of Article 18, pensions and imilar remunerations paid to an individual resident of a State Contractor shall be taxable only in that State.

Article 18

Civil Servants

1.

a) Salaries, wages and other similar remuneration paid by a State contractor or by a political subdivision or local authority ,  to an individual  in respect of services rendered to that State or subdivision or authority , can only be taxed in that State.

b ) However , such salaries, wages and other similar remuneration shall be exclusively subject to tax in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

( i ) Is a national of that State; or

 ( ii) Did not become a resident of that State solely for the services.

2.

a) Notwithstanding the provisions of paragraph 1 , pensions and other  similar compensations paid by a Contracting State or a political subdivision or local entities , either directly or out of  created funds to an individual  in respect of services rendered to that State or subdivision or authority , can only be taxed in that State.

b) However, such pensions and other similar remuneration shall be subject to other Contracting State if the individual is resident and a national of that State.

3. Provisions of Articles 14, 15, 16 and 17 shall apply to salaries, wages, pensions and other similar remuneration in respect of services rendered as part of a business carried on by a Contracting State or a political subdivision or a local authority.

http://boe.es/boe/dias/2014/05/15/pdfs/BOE-A-2014-5171.pdf

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My tax advisor has indicated that for tax year 2014 (2015) a form P60 will need to be submitted to Hacidenda to declare UK government pensions EVEN though it's taxable only in UK.

It will be submitted in a separate heading box under none taxable world wide income.

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I think I have posted about the impact of the new Double Taxation Agreement before. Just to clarify, this is an extract from clause 22.1 b

b) Where in accordance with any provision of the Convention income
derived or capital owned by a resident of Spain is exempt from tax in
Spain, Spain may nevertheless, in calculating the amount of tax on the
remaining income (or capital) of such resident, take into account the
exempted income

This means that they take the income into account when determining your marginal rate if tax, which is then applied to the income which is taxable in Spain. I think I posted that in my view, this means that anyone on a basic state pension (circa £6,000) or a similar income and a government pension of circa £3,000 will pay more tax.

With regard to the implementation, my reading of the DTA is that it comes into effect on 1st January 2015, and will apply to income from that date, and therefore tax payable in 2016, not 2014 and 2015. This is the relevant clause

"2. The Convention shall enter into force after the period of three months following
the date of receipt of the later of the notifications and its provisions shall have effect:

(i) in respect of taxes withheld at source, on or after the date on which the
Convention enters into force;

(ii) in respect of other taxes, for taxation years beginning on or after the date
on which the Convention enters into force;

(iii) for all other matters, on or after the date on which the Convention enters
into force. "

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As I understand it it depends on the type of government pension which still can only be taxed in the state where it's issued. This applies to every other EU state and will continue to be the case.

Generally it is public service pensions except the NHS. So teachers, police, fire and civil service pensions all will continue to be taxed at source under PAYE system. State pensions are taxable in the country of fiscal residency.

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They will still only be taxed at source, BUT they will be taken into account when determining your marginal rate of tax.

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If that is the case kathy then in effect you will pay tax twice on the same income. I cannot see that happening.

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Kathyslad,      

                    thanks as always for your very useful in-put.

I am a bit of a loss as to the meaning of ‘Marginal Rate’

Hitherto if one had an ‘only taxed at source’ pension say in UK,  then income which is taxable in Spain (after the tax free allowance)  starts at 24.75%.

When the new rules come into force, will that mean, for assessing the starting tax band, that the UK taxable pension, say, 20,000€  (whilst taxed in UK)  will be added to the Spanish taxable income (not to be taxed in Spain but to assess the tax band to apply)  so the tax rate on UK State Retirement Pension would start at band 30% instead of 24.75% ?

And do you understand that the tax free allowance on the Spanish income would not be applied in such a case ?  Meaning that the State Retirement Pension would be taxed in full.

 

For info only:-

Present Spanish Tax Bands:-

1-17,707	24.75
17,708-33,007	30
33,008-53,407	40
53,408-120,000	47
120,001-175,000	49
175,001 – 300,000	51
300,001 and over	52

 

 

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This is CNBC understanding of marginal tax rates.

Income in a certain bracket is only taxed at the marginal rate set for that bracket. As income gets higher or moves beyond a section, the marginal tax rate will increase.

However, once a new marginal rate is reached, that rate applies to all taxable income within that rate level and only within that level. Likewise, the income earned below that level is taxed at the lower marginal rate.

So depending on income levels above the personal allowance limit the marginal rate applied would be 30% payable on the taxable portion in Spain.

So the actual effect is you pay an additional 6% on the UK government pension and I don't think that's legal within the EU rules..

 

 

This message was last edited by Mickyfinn on 28/05/2014.

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So depending on income levels above the personal allowance limit the marginal rate applied would be 30% payable on the taxable portion in Spain.

As the OAP is below the Spanish personal allowance, it would create no tax bill,  unless one has further income, e.g. investments, winnings on premium bonds,  etc?

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The basic UK state pension 2014/15 is £113.75 per week. At today exchange rate that's €140 or €7280 per annum.

The tax allowance in Spain for over 65 years individual is €6069. So the taxed income liability is €1211 per annum. Charged at 30% if you have a UK government pension taxed there will attract a payment of €363. Most people have additional pension on top of the state pension plus other taxable income so the liability is much more.

What may reduce that amount is the marriage allowance if a couple of €3400 but that's not simple to apply.

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