police pension tax.

I have residency in Spain and in receipt of a police pension from the UK. A condition of the pension is that income tax has to be deducted in the UK and under the double taxation agreement with Spain no further tax is payable on it in here.

Last week a friend of ours who is selling up to move back to the UK was working out his finances with his accountant who stated to him that Spain was or has just changed the rules on tax and wants all tax on any income to be collected here in Spain. If true this would cause problems for all those in a similar position.

The accountant went on to say the tax authorities here were not sympathetic to the UK tax requirement and just told him to advice his clients that they would have to sort out the tax refund with HMRC and pay the tax here.

Has anyone heard of this or has this accountant got it totally wrong?

Willyr.

The revised Double Taxation agreement between UK and Spain has a very significant section in which the treatment of Civil Service etc pensions will, from next year (i e 2014 income) mean that the sum of the exempt UK pension(s) will be taken into account in determining the median rate of tax on that world wide income which is taxable in Spain but that exempt sum will not suffer tax in Spain of itself. However it may mean increased tax in Spain, depending on precise circumstances.

The CS etc pensions will remain taxable in UK but there is no double taxation involved.

There is another thread (or threads) on this topic in the Forum but I cannot for the moment remember its name!

As I understand it, and I am sure someone will correct me if I 'm wrong, government pensions, like yours, will continue  to be taxed  only in the UK, but must be declared on the Spanish income tax return, in an exemption box. It will be used th work out your tax base  in Spain, though not itself taxed . Confusing, I know!

 It means that those on government pensions will probably pay more tax

Your friend's accountant may be referring to other pensions on which tax has already  been paid in the UK, and is then offset against the tax due in Spain.  This happens before  the procedure of applying for  exemption from UK tax via the double taxation treaty, after which tax is paid in Spain only.

Possibly they are not doing this any more and any tax paid in the UK has to be claimed back? I haven't actually seen anything abut this, perhaps someone will let us know.

I think you'll find that's 2015 income declarable in 2016, not 2014 income.

You won't be able to claim the tax back from UK but any tax paid will be deducted from your Spanish tax bill.

And, yes, it has been discussed on here before along with links to the appropriate website.

Thanks for the advice, it seems the accountant may not have explained the situation to my friend clearly from the replies posted.

I have advised the tax authorities in Spain in previous declarations without problems but as you can imagine was a little concerned. It is unfortunate that we have to pay tax in the UK on the pension but this is because there is not a pension fund for the police and tax is away of clawing some back.

Once again many thanks

Willyr.

"Your friend's accountant may be referring to other pensions on which tax has already  been paid in the UK, and is then offset against the tax due in Spain.  This happens before  the procedure of applying for  exemption from UK tax via the double taxation treaty, after which tax is paid in Spain only.

Possibly they are not doing this any more and any tax paid in the UK has to be claimed back? I haven't actually seen anything abut this, perhaps someone will let us know."

i have posted about this before. Under the DTA you are only allowed to offset tax paid on income that is taxable in both countries. e.g rental income. Tax has to be paid in full on income that is only taxable in Spain e.g private pensions, and the claimed back from the UK. I know many gestors offset it, but that is a breach of the DTA. This is what they are clamping down on. If they pick you up, they can go back 4 years.

We often see advice to expats  from many sources saying" any tax paid in the UK can be offset against the Spanish tax"

so, how many are fearing that their accountant's work on their behalf can land them in trouble?

in the case of savings tax, many banks and building societies will not pay interest gross, so do people really have to go through the laborious ,time consuming process of claiming it back from the UK?  Aren't the banks, due to the DTT  changes, now obliged to pay interest gross?

 Of course it  won't bother those not paying their income tax here!

If your bank or building society in UK won't pay interest gross then they are wrong. You just need to complete revenue form 105 which then obliges them to pay interest without tax taken off. We have done it with Natwest (therefore RBS) and Halifax (therefore BOS).

And back to the original query. You won't get tax taken off that pension in Spain. However, the amount earned will be take into account for earnings which will probably take you into a higher tax bracket and hence the increased taxes on anything else such as private pension, interest, state pension etc.

Has it come into force yet that the banks are obliged to pay savings interest gross. Have the changes been signed?

in which case there there shouldn't be any need to send a form, which I have done in the past, only to be told by Barclays and Nationwide that they couldn't do that.

Technically the banks do not have to pay you gross, it is a facility they provide. If they do not, and lots don't, then under the old DTA you could only claim back over tax paid over 12% from HMRC. If you received it gross, then that was fine. This has changed under the new DTA. If you pay tax, then you can claim it all back from HMRC, providing of course you have declared and paid tax on it in Spain. Whether the banks will amend their systems to enable them to pay gross is a different issue. I suspect not, as there's nothing in it for them.

Some of the advice that people receive from so called "professionals" is really appalling.

Are  UK banks and building societies not obliged by law to comply with tax regulations, following changes to the treaty?

I may be wrong, but I don't believe the regualtions force them to pay you gross, only to deduct tax if it is due, and report details of all interest paid. If they don't provide the facilty now, It would require IT changes, and some of them have more than enough to do just keeping their current systems working. I would suggest it will be very very low down on their list of priorities.

What you have to remember is that there are  a lot of different DTA's, and the one with Spain is just one. Others will not have changed in the same way.

This message was last edited by Kathyslad on 22/07/2014.

What you say about the advice given by  some accountants to expats is true.

Ex pats trust them to deal with, what is to them,  a  complex and sometimes intimidating subject. For many the only experience of paying taxes is paye, and the occasional filling in of a tax code form

They  pay them a lot of money  to take the stress out of income tax returns, asset  declarations etc. because they are supposed to have the knowledge and expertise necessary to do this.

They leave their office in a fool's paradise, relieved after un burdening  financial concerns.

They then hear that many of the things they 're are told  and are done on their behalf, are inaccurate , misleading  and possibly illegal, and may go back years

They then worry that the tax office will spot any irregularities and they will suffer the financial consequences, not the accountant they thought would help them.

They go to another accountant ..........

Meanwhile another expat does nothing about his taxes in a Spain and relaxes with yet another beer!