# Quicky tax query



## Rabbitcat (Aug 31, 2014)

Just a very quicky folks

Wifey has an ISA. If she cashes that in after becoming tax res in Spain is she liable for tax? And if so is it tax on the profit (payout value minus what she paid in) or are you taxed on the entire cash in value. She has no other income at all

Cheers in advance folks for any answers


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## stevesainty (Jan 7, 2011)

If you are unfortunate enough for it to fall after you become tax resident in Spain then you will be liable for tax on the interest only, but on the gross interest not on the interest you receive.
IE if the interest you receive 100GBP then you will be liable for tax on 125GBP as that will be the assumed amount before the 20% tax was deducted (20% 125 = 25).


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## Rabbitcat (Aug 31, 2014)

Cheers Steve you're a star.

We were 99% certain best bet was to cash it before becoming tax resident. Another matter to be sorted along with house sale pre-move


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## tebo53 (Sep 18, 2014)

As I understand it, if you are becoming a full resident of Spain and selling up in the UK then by rights you are not allowed to have an ISA as they are for tax paying UK residents only.

I may be wrong there, and hope to be proved so.


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## snikpoh (Nov 19, 2007)

tebo53 said:


> As I understand it, if you are becoming a full resident of Spain and selling up in the UK then by rights you are not allowed to have an ISA as they are for tax paying UK residents only.
> 
> I may be wrong there, and hope to be proved so.


It is NOT a problem holding an ISA if you are living outside of the UK.

What you can't do is to add to an existing one or to start a new one.


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## stevesainty (Jan 7, 2011)

tebo53 said:


> As I understand it, if you are becoming a full resident of Spain and selling up in the UK then by rights you are not allowed to have an ISA as they are for tax paying UK residents only.
> 
> I may be wrong there, and hope to be proved so.


If you are not resident in UK then you cannot purchase any new ISA´s or repackage existing ISA´s.

You can, however, keep any ISA´s that you opened whilst you were resident in UK and carry on receiving the interest free of any UK income tax. 

The downside is that most ISA providers drop the interest rate to miniscule proportions after the first year to encourage you to buy new ISA´s and repackage your existing ones.

As I mentioned earlier, the interest that you receive has to be declared, grossed up, on your Spanish tax return as part of your world wide income.


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## CapnBilly (Jun 7, 2011)

stevesainty said:


> As I mentioned earlier, the interest that you receive has to be declared, grossed up, on your Spanish tax return as part of your world wide income.


Why would you gross it up ?


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## stevesainty (Jan 7, 2011)

CapnBilly said:


> Why would you gross it up ?


Because it is paid tax free so only represents 80% of the income earned.


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## Rabbitcat (Aug 31, 2014)

Great info and help on this forum which can save you literally thousands. Thanks again folks


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## CapnBilly (Jun 7, 2011)

stevesainty said:


> Because it is paid tax free so only represents 80% of the income earned.


It may be me, but I find your argument illogical, unless you claim relief as well for tax which you haven't paid.


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## stevesainty (Jan 7, 2011)

CapnBilly said:


> It may be me, but I find your argument illogical, unless you claim relief as well for tax which you haven't paid.


All your worldwide income that is eligible to be taxed in Spain should be declared including ISA interest. Now as your interest on ISA´s are paid tax free then it stands to reason that it should be reported as the gross amount, ie before any tax has been deducted.
Spain does not recognize the fact that the income is tax free and so expect the gross amount to be reported. As there has been no tax deducted, you cannot in all honesty declare the assumed tax as having been paid.

I agree that it is a bit OTT on the correctness of taxation reporting, but you either fill in your tax return correctly or you cut corners.


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## CapnBilly (Jun 7, 2011)

stevesainty said:


> All your worldwide income that is eligible to be taxed in Spain should be declared including ISA interest. Now as your interest on ISA´s are paid tax free then it stands to reason that it should be reported as the gross amount, ie before any tax has been deducted.
> Spain does not recognize the fact that the income is tax free and so expect the gross amount to be reported. As there has been no tax deducted, you cannot in all honesty declare the assumed tax as having been paid.
> 
> I agree that it is a bit OTT on the correctness of taxation reporting, but you either fill in your tax return correctly or you cut corners.


Well, we'll have to agree to disagree, as in my view it is not necessary to gross up the income received, as it is already gross, not net when received. This is clear from the ISA rules when you don't qualify. The instructions from HMRC are that tax should be deducted from the interest paid in error and paid to HMRC.


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## stevesainty (Jan 7, 2011)

CapnBilly said:


> Well, we'll have to agree to disagree, as in my view it is not necessary to gross up the income received, as it is already gross, not net when received. This is clear from the ISA rules when you don't qualify. The instructions from HMRC are that tax should be deducted from the interest paid in error and paid to HMRC.


OK, I´m not precious about it.


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