# New Double Taxation Agreement between Spain and UK



## CapnBilly (Jun 7, 2011)

It was announced last week that there is a new draft DTA, which is just awaiting ratification by the respective parliaments.

I've just had a wander through it, and there are some good things, such as witholding tax on dividends reduced to 10% (currently 15%), and 0% (currently 12%) on interest. However, there is, in my view a hidden tax if you have a government pension, which is currently only taxable in the UK. If you have any other income, such as a state pension, which is taxable in Spain, then you currently get the benefit of two personal allowances. 

A government pension is still only taxable in the UK, and this is a standard clause in all OECD based agreements, BUT, in Article 22, under Elimination of Double Taxation it says 

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 or capital. 

My understanding of this, is that they will add the value of a government pension to the income to be taxed in Spain, which will presumably impact your earned income allowance, and possibly your marginal rate of tax. 

Unless my interpretation is incorrect.


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## Dunpleecin (Dec 20, 2012)

If you are "paying" tax in the UK but out of the country most of the time, don't you get a tax rebate anyway? And if so, is this the governments' way of making sure that if you do have a government pension, you do actually pay tax? Via this new stealth tax by the sound of it.


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## Stravinsky (Aug 12, 2007)

Dunpleecin said:


> If you are "paying" tax in the UK but out of the country most of the time, don't you get a tax rebate anyway? And if so, is this the governments' way of making sure that if you do have a government pension, you do actually pay tax? Via this new stealth tax by the sound of it.


If you have a govt pension you DO pay tax at source, no choice. Its the state pension that you can pull away to Spain to take advantage of both allowances


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## NickZ (Jun 26, 2009)

CapnBilly said:


> 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 or capital.
> 
> My understanding of this, is that they will add the value of a government pension to the income to be taxed in Spain, which will presumably impact your earned income allowance, and possibly your marginal rate of tax.
> 
> .


I don't think that's unusual. 

http://www.oecd.org/tax/treaties/1914467.pdf



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



Art 23a.3 So nothing new. Nothing unusual.


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## CapnBilly (Jun 7, 2011)

I didn't say it was unusual or wrong, but is not in the existing DTA, so will affect a number of people.


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## extranjero (Nov 16, 2012)

*Double taxation*



CapnBilly said:


> It was announced last week that there is a new draft DTA, which is just awaiting ratification by the respective parliaments.
> 
> I've just had a wander through it, and there are some good things, such as witholding tax on dividends reduced to 10% (currently 15%), and 0% (currently 12%) on interest. However, there is, in my view a hidden tax if you have a government pension, which is currently only taxable in the UK. If you have any other income, such as a state pension, which is taxable in Spain, then you currently get the benefit of two personal allowances.
> 
> ...


 Surely you cannot be taxed on a military pension in both countries, only in the UK.
What happens if you have a military pension liable for tax in UK, but below the threshold. If it is added to the other pensions declared in Spain it is being taxed in Spain which is not allowed. I am confused!


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## CapnBilly (Jun 7, 2011)

extranjero said:


> Surely you cannot be taxed on a military pension in both countries, only in the UK.
> What happens if you have a military pension liable for tax in UK, but below the threshold. If it is added to the other pensions declared in Spain it is being taxed in Spain which is not allowed. I am confused!


You will only pay tax in the UK. However the value will be added to the pension declared in Spain for the purposes of working out your earned income allowance, and also your marginal rate of tax. Note, the following example is based on my nderstanding of howit is likely to work.

If you have a government pension of €15000 and a state pension of €6870, and interest of €1000 then your total earned income is € 21870. For 2012 you would have got a personal allowance in Spain of €5151 plus € 4080 earned income allowance. After the new DTA you will only receive the minimum earned income allowance of €2652. Your total earned income after allowances will be be €15138' so you will pay tax on €138, whereas at the moment it would be zero, plus, because you have used all your allowance you will pay tax on your interest at 21%. If your government pension is €18000 then you would pay tax on €138, but at 30%, because your total net income is over the first rate threshold. Interest would still be at 21%. 

How much it will cost you will depend upon your income.


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## CapnBilly (Jun 7, 2011)

Sorry, there's a calculation error in the post above (problem with doing it by eye rather than writing it down). I added the earned income allowance to €4080 instead of €5151. I have restated the example

If you have a government pension of €15000 and a state pension of €6870, and interest of €1000 then your total earned income is € 21870. For 2012 you would have got a personal allowance in Spain of €5151 plus € 4080 earned income allowance. After the new DTA you will only receive the minimum earned income allowance of €2652. Your total earned income after allowances will be be €0' so no tax to pay, plus there will be an amount left in personal allowances of €933 to offset against interest , so tax on €67 at 21%.

Basically, if your government pension is above €6390, then you will only receive the lowest earned income allowance. The impact is very personal because it depends upon your income levels.


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## extranjero (Nov 16, 2012)

will the uk tax allowance still remain?


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## CapnBilly (Jun 7, 2011)

extranjero said:


> will the uk tax allowance still remain?


Yes, that is not affected. It's just that your military pension will be added to the income you declare in Spain to work out your earned income allowance, and your marginal rate of tax.


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## BrianWA (Apr 10, 2013)

Hi CapnBilly - thanks for the info

NB I'm Resident in Spain, with private UK state and Govt pensions

I've been declaring all my pensions for the last 9 years. In the beginning I could deduct any UK tax paid but eventually had them all paid UK-tax free except the Govt one and some minor interest payments. The Govt. pension is less than the personal allowance anyway so I haven't paid tax on it in the UK.
I was led to believe that I should declare *all *worldwide income to the Hacienda.
Wonder if I can get a rebate from the Spanish (especially as they fined me for making a mistake in the first return!)
As usual it may well be down to a local interpretation of Articles 18 & 22


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