# Income tax query



## infomaniac (May 27, 2013)

We are STILL deliberating over whether to move to Spain or not and would appreciate some advice on tax please?

My husband & I are not pension age yet and the plan is to sell our house, buy something cheaper and use the difference plus our savings, to live on. 
I receive a small Civil Service pension (which I understand I won't pay tax on in Spain but needs to be declared) and my husband receives a private pension and also an Industrial Injuries pension. 

My question is, what exactly would we be required to pay tax on? Will it be the interest on our savings or the amount itself? And what about our actual income (pensions etc)? As my husbands are taxed at source would we just have to declare them (similar to my pension?)

Many thanks in advance, and I doubt this will be my last question. We are trying to dot every i and cross every t before we make the move!!


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## Lynn R (Feb 21, 2014)

infomaniac said:


> We are STILL deliberating over whether to move to Spain or not and would appreciate some advice on tax please?
> 
> My husband & I are not pension age yet and the plan is to sell our house, buy something cheaper and use the difference plus our savings, to live on.
> I receive a small Civil Service pension (which I understand I won't pay tax on in Spain but needs to be declared) and my husband receives a private pension and also an Industrial Injuries pension.
> ...


You won't have to pay tax on your savings, but only on the interest received from them, plus your husband's pensions. If the amount of tax due on the pensions in Spain is higher than the amount of tax deducted at source in the UK, you'll have to pay the difference - under the double taxation treaty. As you say, you'll also have to declare your Civil Service pension.

If you leave your savings invested in the UK and they amount to more than €50k in any one asset class (cash in the bank, stocks and shares, pension fund, etc) then you will also have to make an annual Modelo 720 declaration of your overseas assets although this will not increase the amount of tax you pay.

If you are a married couple you will have the choice of whether to submit a joint or individual tax returns - whichever is more favourable for you. If one of you doesn't have enough taxable income to use up the personal allowances, then €3700 of that person's personal allowances can be used against your combined incomes for the year which can be advantageous.


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## snikpoh (Nov 19, 2007)

With regard to your savings, if they are invested in a bond (or similar), then you MAY have to pay tax on the whole sum!!!

If they are in a Spanish 'wrapper', then this is extremely tax efficient and is what I do.


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## Roy C (Sep 29, 2012)

Just a question ( I hope you don't mind), if you own a property in the UK as well, is that classed as a taxable asset and if it was used as income would you pay the tax on the rent received in the UK or Spain? My wife doesn't have an income as she is early retired , so we would probably be best to do the joint thing. Finally, here the threshold is about £10,500 (I think), what is the threshold in Spain? When we get there we want to be totally legit. I have a works pension which is not a crown pension.


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## Rabbitcat (Aug 31, 2014)

infomaniac said:


> We are STILL deliberating over whether to move to Spain or not and would appreciate some advice on tax please?
> 
> My husband & I are not pension age yet and the plan is to sell our house, buy something cheaper and use the difference plus our savings, to live on.
> I receive a small Civil Service pension (which I understand I won't pay tax on in Spain but needs to be declared) and my husband receives a private pension and also an Industrial Injuries pension.
> ...


Be very careful WHEN during the year you actually sell your U.K. house as if it is during the same tax year you become tax res in Spain you may be liable to CGT in Spain on the UK house sale


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## Mac62 (May 13, 2015)

Snikpoh, what is a Spanish 'wrapper' please?


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## infomaniac (May 27, 2013)

Thanks everyone, and sorry for not replying sooner-Christmas got in the way!

Rabbitcat-the CGT is a bit of a worry. If we sell up and move in 2017, and the tax year begins in January that would mean we would be eligible wouldn't it? Is there any way to avoid it?


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## Rabbitcat (Aug 31, 2014)

You are tax res after you spend 183 days in Spain.

Therefore in theory if you didn't move out until after early July (assuming you hadnt been there on trips earlier in the year) you wouldn't be tax res in that year and hence not liable for CGT

You can offset CGT by buying a home in Spain with your UK house sale proceeds-but it has to be the full proceeds of the UK sale and as you say you're down sizing I thought that may not work for you

I am def no expert on this but have been researching it myself for our own situ.

May be best to ask a tax advisor


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## tebo53 (Sep 18, 2014)

infomaniac said:


> Thanks everyone, and sorry for not replying sooner-Christmas got in the way!
> 
> Rabbitcat-the CGT is a bit of a worry. If we sell up and move in 2017, and the tax year begins in January that would mean we would be eligible wouldn't it? Is there any way to avoid it?


We sold our property in September just prior to moving to Spain to avoid paying CGT.


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## snikpoh (Nov 19, 2007)

Mac62 said:


> Snikpoh, what is a Spanish 'wrapper' please?


You need to talk to a (Spanish) financial specialist.

In essence, it's a product that wraps around your bond and is approved by the Spanish Government and the Spanish tax man.


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## snikpoh (Nov 19, 2007)

Roy C said:


> Just a question ( I hope you don't mind), if you own a property in the UK as well, is that classed as a taxable asset and if it was used as income would you pay the tax on the rent received in the UK or Spain? My wife doesn't have an income as she is early retired , so we would probably be best to do the joint thing. Finally, here the threshold is about £10,500 (I think), what is the threshold in Spain? When we get there we want to be totally legit. I have a works pension which is not a crown pension.


Assuming that you are Spanish resident (with residency here, taxed here etc.)

The property itself is not taxable but needs to be declared on modelo 790. You may have to pay wealth tax if your TOTAL assets are over about 750,000€ each plus the allowances for your main property.

Any income earned from your UK property MUST be taxed in UK and then declared here. This may result in a little extra tax in Spain depending upon allowances etc.

Tax in Spain starts at 0€ - however there are many allowances so seek a specialist for the correct info.


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## Alcalaina (Aug 6, 2010)

Roy C said:


> Finally, here the threshold is about £10,500 (I think), what is the threshold in Spain? When we get there we want to be totally legit. I have a works pension which is not a crown pension.


The basic allowance is €5,550 and it increases to 6,700 once you are over 65.


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## Lynn R (Feb 21, 2014)

Alcalaina said:


> The basic allowance is €5,550 and it increases to 6,700 once you are over 65.


Plus there is the general earned income allowance (which applies to pensions) of €2,000.


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## infomaniac (May 27, 2013)

Thanks  We have only lived in this house for 3 years so probably won't have "gained" too much but it's still definitely something to bear in mind/


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## Mac62 (May 13, 2015)

Ok, thanks Snikpoh.


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## DonMarco (Nov 20, 2016)

Lynn R said:


> Plus there is the general earned income allowance (which applies to pensions) of €2,000.


Not sure if that applies if you're not employed.

Quoting a Tax advisory service, the allowance you presumably refer to is to be found under the heading - "Earnings related Personal Allowance (for employees)"


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## DonMarco (Nov 20, 2016)

snikpoh said:


> Tax in Spain starts at 0€ - however there are many allowances so seek a specialist for the correct info.


Sorry snikpoh, not sure if I'm missing something but how is that different to anywhere else?


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## Lynn R (Feb 21, 2014)

DonMarco said:


> Not sure if that applies if you're not employed.
> 
> Quoting a Tax advisory service, the allowance you presumably refer to is to be found under the heading - "Earnings related Personal Allowance (for employees)"


It does, both my husband and I get it on our pension income - and our tax returns are completed by Hacienda staff at their office, from the figures we give them on which we clearly state our incomes are from pensions.


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## Lynn R (Feb 21, 2014)

Lynn R said:


> It does, both my husband and I get it on our pension income - and our tax returns are completed by Hacienda staff at their office, from the figures we give them on which we clearly state our incomes are from pensions.


See this information for confirmation that the €2,000 earned income allowance is applicable to pensions:-

https://www.angloinfo.com/how-to/spain/money/income-tax/taxing-uk-pensions


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## Gran Erry-Bredd (Nov 1, 2016)

So if you are 65+ and living on pension income you have the tax free allowance of 6,700 Euros plus the 2,000 Euros ? I looked up some figures and for the year ended 31 December 2016 the tax rate for income of 0 E - 12,450 E consists of state tax of 9.50%, regional tax of 9.50% total 19.00%. For 12,450 E - 20,200 E it's 12% and 12%, total 24%. For 20,200E - 35,200E it's 15% and 15%, total 30%. Does that sound right ? In the UK the tax free allowance is now over £11,000 and the initial tax rate is 20%. The risk of the fluctuating exchange rate and the prospect of having to pay for private health insurance is making me wonder if I can afford the financial risk of emigrating. I want the warmth, sunshine and the beautiful blue skies ! :rain:


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## Alcalaina (Aug 6, 2010)

You have to bear in mind when comparing UK and Spain taxes that while you might pay more income tax in Spain, the equivalent to council tax (IBI) is much lower. We pay per year what we used to pay per month. Same with water rates. Duty on alcohol and tobacco is much lower here too, so if you drink and/or smoke the savings over a year can be substantial. Swings and roundabouts!


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## baldilocks (Mar 7, 2010)

Rabbitcat said:


> *You are tax res after you spend 183 days in Spain.
> *
> Therefore in theory if you didn't move out until after early July (assuming you hadnt been there on trips earlier in the year) you wouldn't be tax res in that year and hence not liable for CGT
> 
> May be best to ask a tax advisor


The 183 day rule is not necessarily true. If the Hacienda determine that your centre of economic interest is in Spain, i.e. wife, family, only home, etc. are in Spain, then so is your centre of economic interest and you could be liable for tax in Spain, irrespective of how long you are in Spain in the tax year.

Consult a tax advisor who knows what she/he is doing with regard to expats and tax matters. Use of a gestor often is worth the small cost.


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## Transcend (Dec 25, 2015)

Gran Erry-Bredd said:


> So if you are 65+ and living on pension income you have the tax free allowance of 6,700 Euros plus the 2,000 Euros ? I looked up some figures and for the year ended 31 December 2016 the tax rate for income of 0 E - 12,450 E consists of state tax of 9.50%, regional tax of 9.50% total 19.00%. For 12,450 E - 20,200 E it's 12% and 12%, total 24%. For 20,200E - 35,200E it's 15% and 15%, total 30%. Does that sound right ? In the UK the tax free allowance is now over £11,000 and the initial tax rate is 20%. The risk of the fluctuating exchange rate and the prospect of having to pay for private health insurance is making me wonder if I can afford the financial risk of emigrating. I want the warmth, sunshine and the beautiful blue skies ! :rain:


Do you have your heart set on a move to Spain? If not, there may be better options when it comes to tax. For example, in Cyprus expat pensioners have a choice:

Either: The first €3.417 of pension income can be had tax-free, with the remainder being taxed at a flat rate of 5%. 

Or: If it is to the taxpayer's benefit, they can choose a tax-free allowance of €19,500. Between €19,501 and €28,000 the rate is 20%.

Also, Portugal has the non-habitual resident (NHR) scheme that can lead to a tax-free period of ten years.


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## Gran Erry-Bredd (Nov 1, 2016)

I know someone who retired to Cyprus but the Euro exchange rate changed dramatically from 1.40 to 1.00 per £1 and he simply couldn't afford to stay there and he is now back in Britain. If you're paying hundreds of Euros per month in rent it makes quite a difference. This was a few years before Brexit. He also told me stories about corruption by the authorities that cost him money. I'm still keen on Spain but I wish we could hear quickly about what will or won't change for expats.


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## Gran Erry-Bredd (Nov 1, 2016)

Alcalaina, I don't smoke or drink. However if I did I could save a lot of money couldn't I ? Perhaps that's the best idea.


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## Alcalaina (Aug 6, 2010)

Gran Erry-Bredd said:


> Alcalaina, I don't smoke or drink. However if I did I could save a lot of money couldn't I ? Perhaps that's the best idea.


Absolutely, the more you drink the more you save! 

Life's too short to worry about taxes. It's only money, whereas a plate of good cheese with a glass of rioja ls what makes life worth living.


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## Williams2 (Sep 15, 2013)

Gran Erry-Bredd said:


> Alcalaina, I don't smoke or drink. However if I did I could save a lot of money couldn't I ? Perhaps that's the best idea.


Yes also many people looking on the down side of old age of the - I don't want to live into my 80's and 90's with looming frailty being a burden on others and the spectre of ending up in a care home ( with all the who's going to pay - which that entails )

Might see smoking and drinking as a safeguard against that and extreme old age !!


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## Rabbitcat (Aug 31, 2014)

Alcalaina said:


> Absolutely, the more you drink the more you save!
> 
> Life's too short to worry about taxes. It's only money, whereas a plate of good cheese with a glass of rioja ls what makes life worth living.


Exactly

I always follow that logic 

In fact last week I was walking down the high street and found someone's electricity bill

I went to the bank and paid it and was refunded a whopping 25% discount!! Result!!!

Ching Ching


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## baldilocks (Mar 7, 2010)

Alcalaina said:


> Absolutely, the more you drink the more you save!
> 
> Life's too short to worry about taxes. It's only money, whereas a plate of good cheese with a glass of rioja ls what makes life worth living.


Depends on what one calls "good cheese!" We were, once, given a wheel of Manchego preserved in oil that we would never have been allowed to take onto the aircraft to go home - it stank to high heaven. I'm all for cheese with plenty of flavour but there are limits.


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## Gran Erry-Bredd (Nov 1, 2016)

Wasn't Ching Ching a Chinese Panda ?


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## Alcalaina (Aug 6, 2010)

baldilocks said:


> Depends on what one calls "good cheese!" We were, once, given a wheel of Manchego preserved in oil that we would never have been allowed to take onto the aircraft to go home - it stank to high heaven. I'm all for cheese with plenty of flavour but there are limits.


Cada uno a su gusto. There are more than a hundred to choose from, and that's just those made in Spain!


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## snikpoh (Nov 19, 2007)

baldilocks said:


> Depends on what one calls "good cheese!" We were, once, given a wheel of Manchego preserved in oil that we would never have been allowed to take onto the aircraft to go home - it stank to high heaven. I'm all for cheese with plenty of flavour but there are limits.


I was given one of those with olive oil over the cheese. Any way, I was told to keep it in the fridge .....

went to have some one day and the whole bl**dy bucket was solid! Took ages to liquefy again so that I could try the cheese - when I did eventually, it was far too strong for me.


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## Alcalaina (Aug 6, 2010)

What a pair of wimps you are!

NB you should take mature cheese out of the fridge at least 24 hours before you're going to eat it.


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