Taxman investigates Pensions from outside Spain

mickeyfinn

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

At the moment. Cameron and Rajoy agreed at a meeting a couple of years ago that government pensions would, at some stage, be taken into account when assessing taxes. Kathyslad has said it'll be next year so 2016 for the first time it will count. So if the UK gov takes 200 quid off you for taxes on the government pension but the Spanish system says it should be 300, you'll have to pay the Spanish gov 100 quid.

I should imagine it would only affect a limited number of people unless they have a couple of these pensions and the state pension when it will be taken into account.

In my case, I get a government pension and only declare my NHS here in Spain. In UK I was being charge £100 a month tax on the NHS pension as both were counted together. Here in Spain the gov pension is not taken into consideration and the NHS pension is less than the Spanish allowance so I save £100 a month.

I'm assuming this will stop when I put my declaration in in 2016 for the 2015 year as they will take the UK gov pension into account. For exampl, gov pension 9000 a year, NHS pension 6000 a year. I pay nothing on my gov pension in UK as it is under the 9440 allowance. The 6000 in Spain gets no tax as it is under the married and single persons allowance.

However, add them both together and it becomes 15000 liable for tax or around 2,500 a year in tax when the allowances are removed. (very rough figures).

Spanish tax calcualtions work differently to the UK. They take your total income, deduct the earned income allowance, and then work out the tax you pay on the net amount. They then allow a credit for your personal allowance at the basic rate. The net figure is worked into a percentage of your total taxable income. This is what I called your marginal rate. This rate is then applied to your taxable income in Spain.

So, when they include your government pension, then this obviously increases your marginal rate. As an example, with a basic state pension of €7,200 and a government pension of €12,000, currently there would be no tax to pay in either country (assuming you have just the basic persoanl allowances). Under the new DTA, there would still be no tax to pay in the UK, but in Spain it would be about €65. Now that doesnt sound a lot, but thats after a reduction of €400 that they introduced a couple of years ago as a deduction from all low income earners (its on a scale basis). There were rumours of this being abolished last year, but it is still current this year. If this was abolished, then, as I posted before, you could start paying more tax if you have a government pension around  £3,000 (over 65) and £2,500 (under 65).

On this basis then the government pension or crown pension as they are actually know will after 2015 be paid gross of tax to Spanish residents. Otherwise it would become necessary to claim it back if it's taken into account as income in Spain.

I cannot find any reference for these new arrangements to confirm what's being written on here. Does anyone have a URL?

I think you need to reread my explanation, as there is a big difference between paying tax on a pension, and taking into account to determine your marginal rate, as I described it. To reiterate, you will not be oaying tax on a government pension in Spsin. What us happening us that you will be taxed on your other income, as though you were reviving your government pension in Spain.

I'm sorry Kathy call me dense if you like but I have read your posts over and over again and still cannot make any sense of it or your interpretaion of marginal rate.

My best and most simple conclusion is this. The crown pension from UK will be added to your taxable income in Spain then with allowance subtracted the balance is taxed at 30% if it comes into that income band. Less the tax taken in UK.

Micky, that is not what Kathslad says.   If I could I would make what he said clearer but I don't think it could be explained better.

Thanks Johnx. I did think it was clear, but

just in case you didn't understand it because of the spelling mistakes ( I hate predictive text on iPads) I am repeating it, spelt correctly.

I think you need to reread my explanation, as there is a big difference between paying tax on a pension, and taking into account to determine your marginal rate, as I described it. To reiterate, you will not be paying tax on a government pension in Spain. What is happening is that you will be taxed on your other income, as though you were receiving your government pension in Spain.

And then one last go using your example

The crown pension from UK will be added to your taxable income in Spain, then with your allowances subtracted, the tax you would pay if you received this income in Spain is calculated. If the tax you would pay multiplied by a 100 divided by the taxable income ( including crown pension) is say 10%, then this is the rate that is applied to your income that is only taxable in Spain ( ie not including crown pension)

So am I correct under this scenario please assuming no other assets or income?

UK Crown pension £25000 per year. Tax allowance of £10.5k, taxable income £14500 tax payable £2900 at 20%.

State Pension €7500 declared in Spain. €6069 tax allowance taxable income €1431 tax due at 30% because total income taken into account - tax payable €429.

Total tax €3996. @ €1.23 on a total gross pension income of £32k Sterling.

More or less assuming they retain the €400 low income allowance next year. If not, then its plus €400.

I am assuming that next year the alowances and rates will change as it is election year, and they haven't changed (except for the supplementary rate increases) since 2007. Personally I am assuming that they will eliminate the low income allowance.

OK thanks Kathy. Think I've done this to death now.

Would be nice to have such a whopping great pension to worry about!

It was an example and not a personal quote but it is an average for long UK government service.

The £25K may be an average but the majority of ex Govt emplotees receive much less than this.

It is the old adage- there are lies, damn lies and statistics.

Can I assume all the info quoted relates to tax resident in Spain(after 183 days) and not resident after 3 months?

and secondly if tax resident

For a couple with individual NHS pensions but no state pensions as retiring early please could someone explain the following in relation to offsetting allowances that could be used

Earned income allowance (includes pension income)

Earnings up to €9.180 €4.080

Earnings over €13.260 €2.652

(sliding scale applies for income between the two limits) (taken from advoco website)

thanks

Quote from Olive Press 29/5/14   :-

THE Spanish tax agency has launched investigations into more than 27,000 retired expats and returned Spanish na­tionals for failing to declare their pen­sions from abroad.

Finance Minister Cristobal Montoro said the retirees arc 'not being treated as fraudsters' and that his agency will 'avoid harming the financial position of those affected' as far as possible.

But the agency does intend to implement repayment measures. Socialist party spokesman Antonio Hurtado believes, however, that it is unfair to treat pensioners as criminals, considering 30,000 fraudsters benefitted from a tax amnesty in 2012. He said their only crime is having been misinformed by the Inland Revenue re­garding the treatment of their pension

(Take notice, you guys who think you have the excuse that HMRC did not tell you you were doing it wrong)

I get the vivid impression that the Spanish and government and johnzy come to that, thinks all expats in Spain lack the common sense to seek individual tax advice from a Spanish tax advisor if they are fiscal residents.

If that were the case so many of them would be out of business. Yet they seem to be thriving very nicely. Odd that.

Micky. Please note;   I am just the messenger.   However, that said, from the number of questions raised on EOS  and the number of follow-ups which ask for clarification, there may be something in what you say.

Bearing in mind that it is estimated that less than 5% of those who should have made the 720 declaration did so, I would not be confident that all that many do seek professional advice, or if they do, they either do not understand it or they ignore it. But I may be wrong.

As soon as you fill these forms in they have got you on record most people I speak to are not bothering, just plead NO COMPRENDEZ AMIGO if you are caught which is very doubtful

** EDITED - Inciting **

When  a 720 has been submitted, the taxman has a convenient list of assets on which to base the IHT.

those not submitting it, no doubt will just state the  assets of the deceased in Spain, conveniently missing out the bank account and investments sitting safely in the UK, in the knowledge that the taxman will probably not delve further.

Meanwhile their more law abiding neighbour , if unfortunate enough to live in the Murcia region, will be landed with a mighty bill.

let 's hope these illegals get the full force of the draconian fines promised by the Hacienda, if they get their act together, and start searching for the non payers.

As the tax bill is on the inheritor and not the estate. I was wondering how that could be enforced if the inheritor and the asset (say a bank account) are outside Spain.