# Tax and Pension Lump Sum



## Roy C (Sep 29, 2012)

I think tax and pensions are very confusing and I want to do things right but I don't want to lose a load of my retirement fund in tax. I will be paying tax on my occupational pension when I get there. I am due to get Voluntary Severance and works pension in march 2016. The pension lump sum will be tax free and tax on my Voluntary Severance after 30K.

If I move to Spain shortly after that, will Spain then hit me for tax on the payments I received or should I wait until 2017 to move?


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## extranjero (Nov 16, 2012)

Pension lump sums that are tax free in UK aren't in Spain!
You need to talk to a financial advisor
Usually people asking this question are advised to move the year after getting the lump sum, so that they are not tax resident in the same year they receive it.


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## Roy C (Sep 29, 2012)

Thanks for that extranjero, I was also thinking i I moved after June and then registered tax resident in Jan 2017 I would be able to save tax that way?


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## Lynn R (Feb 21, 2014)

Roy C said:


> Thanks for that extranjero, I was also thinking i I moved after June and then registered tax resident in Jan 2017 I would be able to save tax that way?


If you receive your lump sum in March, and don't move to Spain until July, then (provided you haven't spent any holidays in Spain during the first six months of the year) you won't be tax resident in Spain for the 2016 tax year as you will have spent less than 183 days there. The first year you become tax resident would be 2017 and you would, therefore, have to submit your first Spanish tax return in May/June 2018 when you would declare all the income received between 1 January 2017 and
31 December 2107.

You don't "register" yourself as tax resident, as such, you automatically become one after you've spent 183 days in the country in the same tax year.

That is different from signing on the register of foreign residents, which you need to do after 90 days (providing proof of income and healthcare).


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## Maureen47 (Mar 27, 2014)

Just to check my understanding as this situation affects me too , as long as you havent spent 183 days in Spain in a year , then you do not automatically become tax resident , when you have you declare anything income wise in the previous tax year , is it a calendar year in Spain or a financial year in terms of tax ? Its looks like timing is key , I am reluctant to be taxed on something that is tax free in the UK and I have worked all my life for , I have always paid my taxes (they have had 40% of my salary for a good number of years) but somehow I would struggle with paying tax on my UK money which is legally tax free here and which will set us up for the future.


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## xabiaxica (Jun 23, 2009)

maureen47 said:


> Just to check my understanding as this situation affects me too , as long as you havent spent 183 days in Spain in a year , then you do not automatically become tax resident , when you have you declare anything income wise in the previous tax year , is it a calendar year in Spain or a financial year in terms of tax ? Its looks like timing is key , I am reluctant to be taxed on something that is tax free in the UK and I have worked all my life for , I have always paid my taxes (they have had 40% of my salary for a good number of years) but somehow I would struggle with paying tax on my UK money which is legally tax free here and which will set us up for the future.


the tax year in Spain runs Jan 1st to Dec 31st


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## Maureen47 (Mar 27, 2014)

xabiachica said:


> the tax year in Spain runs Jan 1st to Dec 31st


Thanks , I think it works for us, we wont spend 183 days in Spain in 2015 but will in 2016 when we will become Tax Resident and therefore our first Spanish tax return due in 2017 for the year of Jan -Dec 2016 which should mean we dont have to declare the lump sums from 2015 as these will have been dealt with in the UK tax return and not relevant in Spain because of the timings , I think this is correct , I hope so it has made me feel a lot better !


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## Lynn R (Feb 21, 2014)

maureen47 said:


> Thanks , I think it works for us, we wont spend 183 days in Spain in 2015 but will in 2016 when we will become Tax Resident and therefore our first Spanish tax return due in 2017 for the year of Jan -Dec 2016 which should mean we dont have to declare the lump sums from 2015 as these will have been dealt with in the UK tax return and not relevant in Spain because of the timings , I think this is correct , I hope so it has made me feel a lot better !


Yes, that's right, Maureen.


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## Roy C (Sep 29, 2012)

maureen47 said:


> Just to check my understanding as this situation affects me too , as long as you havent spent 183 days in Spain in a year , then you do not automatically become tax resident , when you have you declare anything income wise in the previous tax year , is it a calendar year in Spain or a financial year in terms of tax ? Its looks like timing is key , I am reluctant to be taxed on something that is tax free in the UK and I have worked all my life for , I have always paid my taxes (they have had 40% of my salary for a good number of years) but somehow I would struggle with paying tax on my UK money which is legally tax free here and which will set us up for the future.


I'm in exactly the same position, years of paying 40% tax and with a tax free lump sum on the horizon and the chance of losing a chunk of it, hence the move will be delayed to the July to benefit from the 183 days loop hole......or is it a loop hole.


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## Roy C (Sep 29, 2012)

Thanks for confirming that Lynn...


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## extranjero (Nov 16, 2012)

Roy C said:


> I'm in exactly the same position, years of paying 40% tax and with a tax free lump sum on the horizon and the chance of losing a chunk of it, hence the move will be delayed to the July to benefit from the 183 days loop hole......or is it a loop hole.


Better check any other lump sums that might come your way,possible inheritances, savings plans, bonds coming to fruition etc,all taxable in Spain.
Ever thought of being non resident, spending less than 183 days here, not having to worry about tax implications of moving to Spain?
Some say the positive aspects of retiring to Spain outweigh the disadvantages, but only those in an extremely comfortable position can say this.


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## baldilocks (Mar 7, 2010)

@Lynn R


> That is different from signing on the register of foreign residents, which you need to do after 90 days (providing proof of income and healthcare).


In fact it is *within* 90 days of arrival not *after* 90 days.


@Maureen47


> Just to check my understanding as this situation affects me too , as long as you havent spent 183 days in Spain in a year , then you do not automatically become tax resident ,


The authorities can deem that you are tax resident if you spend less than 183 days here, if they decide that your economic base is in Spain.


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## xabiaxica (Jun 23, 2009)

baldilocks said:


> @Lynn R
> 
> In fact it is *within* 90 days of arrival not *after* 90 days.
> 
> ...


that tends to be in rather more complicated situations than Maureen47's though


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## Roy C (Sep 29, 2012)

extranjero said:


> Better check any other lump sums that might come your way,possible inheritances, savings plans, bonds coming to fruition etc,all taxable in Spain.
> Ever thought of being non resident, spending less than 183 days here, not having to worry about tax implications of moving to Spain?
> Some say the positive aspects of retiring to Spain outweigh the disadvantages, but only those in an extremely comfortable position can say this.


extranjero, thanks for the advice but I can assure you I am not in a lucky position of having any further lump sums coming my way, just what I have worked for in terms of my occupational pension. I certainly wouldn't not want to live full time in Spain and intend to pay my tax on my pension in Spain as required and any other taxes. If the bit came to the bit I would pay tax on the lump sum but if I can do something which will go towards my private med insurance, then all the better, as I won't have the benefit of the S1 or Spanish health care.......


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## Lynn R (Feb 21, 2014)

extranjero said:


> Better check any other lump sums that might come your way,possible inheritances, savings plans, bonds coming to fruition etc,all taxable in Spain.
> Ever thought of being non resident, spending less than 183 days here, not having to worry about tax implications of moving to Spain?
> Some say the positive aspects of retiring to Spain outweigh the disadvantages, but only those in an extremely comfortable position can say this.


I disagree - I'd say those who can afford to keep a foot in both camps, spending up to half the year in Spain whilst maintaining a home in the UK are in the most comfortable position.

I certainly couldn't have afforded to give up work and do that - so I had a choice to make, and I made it. If someone retires, keeps on their home in the UK with all the associated expenses (Council Tax, utilities, insurance, TV licence - until they're 75 - and maintenance, and then rents somewhere to live in Spain, paying utility bills there as well as rent, for 6 months of the year, how much extra are they going to be spending each year? At the very least £3,000 per year, I would think, whilst paying to leave a house empty in the UK for that time. Taken over, say, 25 years of retirement, that adds up to quite a lot. Plus the complications of how to access healthcare for the time they spend in Spain. And living in a rental property, most likely a different one every year, with none of their own things around them, for up to half the year. 

I would not be comfortable delaying a much-wanted move to Spain on the basis that I might expect to receive an inheritance and if I stayed in the UK I wouldn't have to pay tax on it - that would make me feel something of a vulture. And just because someone might have expectations of an inheritance doesn't necessarily mean they will get it - their relative might have to go into a care home and most if not all of their assets used to pay for their care, or they might decide to leave everything to the local cats' home. Wouldn't anyone who'd been hanging around on those grounds end up feeling very peeved indeed.


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## Maureen47 (Mar 27, 2014)

baldilocks said:


> @Lynn R
> 
> In fact it is *within* 90 days of arrival not *after* 90 days.
> 
> ...


Oh Dear , I do hope not !


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## xabiaxica (Jun 23, 2009)

maureen47 said:


> Oh Dear , I do hope not !


well yes - it is - but they won't shoot you nor refuse you for being late


as for the tax thing - it's complicated, but as long as you can prove (if challenged) that you aren't here over that time, & you clearly don't actually live here, you should be fine


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## Maureen47 (Mar 27, 2014)

xabiachica said:


> well yes - it is - but they won't shoot you nor refuse you for being late
> 
> 
> as for the tax thing - it's complicated, but as long as you can prove (if challenged) that you aren't here over that time, & you clearly don't actually live here, you should be fine


We definitely wont be living in Spain until the end of Oct 2015 , our first full year will be 2016 , therefore a tax return due 2017 for tax year 2016 where there will only be our pensions to declare as the lump sums will be in 2014 and 2015, we will visit in 2015 for 12 days but that still should not take us over the amount of days and we will certainly not be living in Spain. Hope that works !


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