UK CROWN PENSION TO BE DECLARED IN SPAIN THIS YEAR

I have just re-read the info re UK Crown Pension being taken into account when working out the tax to be paid in Spain on income taxable here.I had believed it would apply from next year's declaration.

I spoke an Accountant and a gestor both said CP income in UK will be taken into account as from THIS YEAR.

However, now I believe I was wrong and that such pensioners must supply info re their CP this year as the professionals have said.

I copy below the relevant part of the DTA.   It says quite clearly that as from 1^st Jan 15 Hacienda will take CP income into account.  That is; not as I read it, ie. on taxable income as from Jan 15.

Any comments?  I have my appointment with my gestor tomorrow ? 

http://citizensadvice.org.es/wp-content/uploads/PERSONAL-TAXATION-IN-SPAIN-3-DOUBLE-TAXATION-2015.pdf?eb5d63&745795

Extract:-

Pensions

State and /or private pensions are taxable only in Spain. You should

apply for these to be paid gross in the UK (using Form Spain Individual)as under the DTA the tax is payable in full, and should not be offset, although many gestors operate it this way.

Government Pensions(GP) are taxable only in the UK; they may not be taxed in Spain under the DTA. Under the old DTA they didn’t need to be declared in Spain. However, from the 1stJanuary 2015, Spain will be able to take the income into account when working out your marginal rate of tax in Spain. This is a standard clause in the OECD DTA. What this means in practice is that if you have no other income which is taxable in Spain (e.g.state pension, interest, rental income etc.) then it will have no impact (until you start drawing your state pension). If you do have any other income, then the way it works is that they take your GP into account when working out your total income. They then work out the amount of tax you WOULD pay if it was taxable in Spain. This amount is then divided into your total income, and the resulting percentage is your marginal tax rate. This rate is then applied to any income that is taxable in Spain

This message was last edited by johnzx on 20/05/2015.

The Double Taxation Agreement came into effect in 12th June 2014, and applies to withholding taxes from that date, and other taxes from 1st January 2015. Withholding taxes in the DTA are normally interest, dividends, royalties and management /technical fees.

So the extract you have quoted is saying that it applies to income received from 1st January 2015, not tax returns submitted after that date.

Yet several people have been informed by their solicitors that the Spanish tax office have stated this income is to be declared, and taken into account, from the year 2015 and not for the year 2015. 

Some have had tax bills which reflect government pensions for 2014 which had to be declared on the returns done in 2015 as johnzx has just stated. 

Now, I read it as include it in your income for 2015 but there are other sites where people are saying no, to be included on your tax return done in 2015 and have been informed by different solicitors that this is the case.

I know things shouldn't be confusing but they seem to go out of their way to make it so.

Up date

I have just returned from my gestor’s office where I made my Tax Declaration for my 2014 income.

The gestor originally said the gross CP had to be entered in the ‘Funcionarios’ box on the PADRE (on-line tax form) and then the amount of tax I had paid in UK in another box, and that payment would then be taken from my total income, i.e. including my CP. I would then have to pay tax on the remainder, which have would included paying tax on my CP..

I explained that in UK a funcionario is probably a town hall worker but that the Military. Police , civil servants, etc. were quite different as they were Crown Employees.

After some discussion, during which I produced a copy of the 2013 Double Taxation Agreement which shows a CP cannot be taxed in Spain, she called Hacienda and the third person to whom she spoke understood the difference.

The result was that she was told to ignore my CP.

I do not think that was correct as the DTA says the CP can be taken into consider to establish the marginal rate of tax one must pay in Spain.

Had I not 'discussed' the DTA with the gestor I would have paid at least 1,000€ more on tax this year. I understand that all other of her customers who have CP, and for whom she has already completed the form, will be paying the increased tax. Those from now on will not, as long as they make it clear they have a Crown Pension.

I am pretty certain this will affect many crown pensioners as the interpretation is very varied. It is up to you to make sure they get it right.


Posted for the information of others affected.

PS When I expressed surprise that my tax bill was quite a bit higher this year than last, the gestor recalculated my bank interest using 1.15 euros to the pound, instead of the average for 2014 of 1.24 which I had used and 1.28 which was the rate on 31st Dec 14.  When I questioned that rate,  she said it did not matter as they never check it !!!!

So pick a number and half it !!!!

This message was last edited by johnzx on 21/05/2015.

I have just found a surprisingly long list of those who get Crown Pensions and thus are taxed in UK only.

My Gestor wanted to know which clients would be affected. 

For those who might be affected,  or those just interested,  the list is here:-

http://www.hmrc.gov.uk/manuals/intmanual/INTM343040.htm

Hi, does anyone know for sure what will happen, the actual effect,  when this new rule is applied as from this year ?

Its quite straightforward.

They  take ALL your income (including Crown pension) and work out the amount of tax you would pay if it was all taxable in Spain. They then divide the tax amount by the TOTAL income and multiply by 100. The result is your marginal tax rate, which they then apply to your income which is taxable in Spain.

In calculating the tax on world income as the first stage of arriving at the net tax rate, surely the tax paid  in UK (on Government Pensions etc) would be deducted from the "tax payable in Spain". Similarly the tax suffered on Bank interest in UK (Lloyds Bank refuse to deal with gross payment forms!) would also be deducted.

Although taking your government pension into consideration when working out the rate of tax, they won't be able to actually tax you on that, will they? That would mean being taxed twice on the same income which is against the dual tax treaty rules. So, if you have a government pension of, say, 15k and a state pension of 5k then they would set your tax level (percentage) based on 20k but (and I'm pretty sure this is correct) they could only tax you at that level on the 5k as the 15k has already been taxed.

The bit I'm not sure on is the tax allowance. You have already had the tax allowance on your government pension with anything left over added to the state pension and taxed on that in UK. So, in the above, you would get the 11000 tax allowance in UK and then pay tax on the remaining 9k. The tax you pay on that should be deducted from your Spanish tax liability. With savings taxed at source, any interest would also be added to that total amount but the tax you pay on it should also be deducted from your Spanish liability.

(Just one point, new UK legislation says you will be able to earn £1000 a year interest and not pay tax on it. Obviously this won't cut the mustard in Spain so they will probably add it all together and tax you on it).

Anyway, I think that's how it should work but we will find out next month.

You can deduct any tax already paid  on income which is taxable only in the UK (except for a Government pension) or may also be taxed by the UK, in accorance with the Double Taxation Agreemment. With regard to interest you can claim tax paid on interest upto 12%, because over this amount you can reclaim from HMRC.

 

Just so there is no doubt, you CANNOT claim relief for tax paid on a Government pension in the UK.

So, in order to provide some information and using Boboals example of £15k Government pension and state pension of £5k, but ignoring any interest, as I have already commented on this earlier. These examples are based on an average rate of €1.30

Normally with a state pension of £5k this  would well below the allowances allowed in Spain. However, adding the Government pension to work out the marginal tax rate to be applied, means that you would pay around €125.

However, changing the mix slightly makes a big difference. So the same total of £20k but made up £10k government pension and £10k state and other income would result in an additional €1,000 (approx).. Normally tax on £10k would be around €550, but because the marginal rate is higher, the tax payable under the new system would result in tax in Spain of around €1,550

Note, these figures are based on Andalucia/Valencia tax rates which are at the higher end, some rates in some other regions may be slightly lower, so a possible difference of circa €50
 

.

Bob  The bit I'm not sure on is the tax allowance. You have already had the tax allowance on your government pension with anything left over added to the state pension and taxed on that in UK.

 I have always understood the OAP is taxable in Spain not UK.  Whilst the Crown Pension is taxable in the UK and not in Spain.

I agree johnzx. However the UK HMRC have sent me an advice notice saying the tax on my government pension is going up as I now receive the state pension. I think they have ignored my letter stating I pay tax in Spain and it looks like I'll be paying tax in both countries until they sort it.

you need to complete a Form Individual Spain and send it to HMRC together with a certificate of Fiscal Residence from Spain. You can obtain this from the Hacienda. Once you submit this they will apply the full allowance against your government pension, rather than allocating some for the state pension.

.

This is an email I have  just sent to the body which represents retired UK police officers in UK.

 It of course potentially affects all UK Crown Pensioners living in Spain.  I should be interested to hear from other Crown Pensioners who have made their tax return for 2015

Re Double taxation Agreement (Spain and UK) as at:- 

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/412302/spain-dtc.pdf

Article 18 refers to Crown Pensions resident in Spain, who are not also Spanish Nationals.

This morning a tax specialist in Spain was completing my on-line tax return for 2015.  Using my P60 she noted the amount of police pension I had received gross, calculated what the tax on that would be in Spain, deducted what I had paid in tax in UK, and told me I had to pay the difference. It was 5,000 + €  on a gross pension of £24,000.    Thus she was taxing me on my Crown Pension.  I explained a Article 18,  i.e. that I could not be taxed in Spain on my Crown pension.

At my request she called the Spanish tax office, but she was unable to get answer regarding what I should or how it should pay, or how it should be dealt as per the DTA. 

There is no provision in the on-line form to accommodate that situation.

This will almost certainly apply to all Crown Pensioners living in Spain.

I have spoken to a helpline at HMRC who said they will refer the matter to the International Branch and I should get a reply by next Tuesday 7th June.

As you know this is absolute rubbish.

The government pension should be declared in Box 470 of the padre system and it will calculate the tax rate on your total income and then apply the rate to the income which is taxable in Spain. It's called "Rentas exentas excepto para determinar el tipo de gravamen", and is a standard inclusion in the padre model. Although it's new to the UK DTA it has been included in others since the early 90's.

According to my calculations, and based on a government pension of £24,000,  the tax on €10,000 of taxable income in Spain  is circa €975, assuming you are under 75 and submitting an individual return. 

Kathylad I have sent you a PM

I do not have this year's form (PADRE) in front of me,  but box 470 last year was for deduction for people with incapacities.  I guess it is a reprint this year.

No, it is different from last year.

I have just made my tax return for 2015 and have paid 4,500 € more tax this year than last.  My income this year is more or less the  same as last so the only reason for the increase is that my Crown Pension 'has been taken into consideration'.

PS  I have contacted the Met Police Federations and they are instructing  a solicitor to investigate the situation.