# personal allowance and pension



## Calabaza (Sep 6, 2013)

HI
I have tried to find the answer through the Spanish Gov web sites but still not found the answer to a simple Q ( maybe I am simple ? )
My understanding is that once I have registered into Hacienda for tax I have a personal allowance of €5,151.
Then I have looked at private pension and it seems this is classed as "wage earner deductions). It says- if the income rises to €13,260 then it is fixed at €2,652.
My Qs are 
1 / What if my pension is €25,000 .....does this stay at €2,652 ?
2 / Is the deduction of €2,652 added to my personal allowance of €5,151 do I have an allowance of €7,803 per year or is it just €2,652 total ?
I will be in Spain in a few weeks and will seek professional advice but for now does anyone know so I can work out figures
Thank you


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## zenkarma (Feb 15, 2013)

Calabaza said:


> 1 / What if my pension is €25,000 .....does this stay at €2,652 ?


Yes, your total income is over €13,260.



Calabaza said:


> 2 / Is the deduction of €2,652 added to my personal allowance of €5,151 do I have an allowance of €7,803 per year or is it just €2,652 total ?


It's added. You have an allowance of €7,803 to ofset against your tax.


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## Calabaza (Sep 6, 2013)

well, thank you zenkarma - better than I though,t yippee.
I see you are from Garrucha ..that's an area I will maybe be renting in until I find a permanent home. Its a bit too busy for me to live long term but there does seem to be a nice community feel to it whilst I find my feet.
Can you recommend a good gestor / tax advisor in your area please ?


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## zenkarma (Feb 15, 2013)

Calabaza said:


> I see you are from Garrucha ..that's an area I will maybe be renting in until I find a permanent home. Its a bit too busy for me to live long term but there does seem to be a nice community feel to it whilst I find my feet.
> Can you recommend a good gestor / tax advisor in your area please ?


Garrucha is a typical Spanish village you won't find many people there speaking English. It's a place where many Spanish people have holiday homes and come down for their holidays.

I really like it, it's not too big and not too small and has a lovely beach that stretches the full length of the village. Vera to the east and Mojacar to the west are two other areas you might like to look at.

I use these people, they speak Spanish and English and I've never had any problems with them:

Pilar Perez Gestion S.L.
Telephone: 950 478 863 
Fax: 950 472 859 
Paseo del Mediterraneo, 111
Mojacar Playa
04638


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## GallineraGirl (Aug 13, 2011)

zenkarma said:


> Yes, your total income is over &#128;13,260.
> 
> It's added. You have an allowance of &#128;7,803 to ofset against your tax.


Can you please explain what you mean by a 'private pension'. Do you mean one where you have paid in all the contributions? If you have a pension where you paid 'additional voluntary contributions', in addition to contributions from your salary, for an occupational pension could you claim the additional allowance?


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## crookesey (May 22, 2008)

GallineraGirl said:


> Can you please explain what you mean by a 'private pension'. Do you mean one where you have paid in all the contributions? If you have a pension where you paid 'additional voluntary contributions', in addition to contributions from your salary, for an occupational pension could you claim the additional allowance?


I was under the impression that anything that is not classed as the State Pension is classed as 'private', but I stand to be corrected if this is not so.


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## Stravinsky (Aug 12, 2007)

crookesey said:


> I was under the impression that anything that is not classed as the State Pension is classed as 'private', but I stand to be corrected if this is not so.


I suppose a Government pension is slightly different to a private pension in that under current rules it wont be taxed in Spain ... but might be soon 
Whereas a "normal" private pension would be declarable in Spain


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## zenkarma (Feb 15, 2013)

GallineraGirl said:


> If you have a pension where you paid 'additional voluntary contributions', in addition to contributions from your salary, for an occupational pension could you claim the additional allowance?


The additional allowance is not determined by the type of pension. 

A single person would get a personal allowance of €5,151 to offset against any type of income before tax liability. In addition to that personal allowance you would also get an earned income allowance (which includes pension income) of €4,080 for earnings up to €9,180 and €2,652 for earnings over €13,260. There's a sliding scale that operates between those two figures.

Occupational and UK state pensions are all taxable in Spain if you are a fiscal resident there regardless of how the contributions were made. A purchased annuity is taxed differently. UK Government service pensions such as civil service, police, fire brigade, armed services etc are only allowed to be taxed in the UK and are therefore not subject to Spanish taxation.


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## Calabaza (Sep 6, 2013)

Thank you Zenkarma for the recommendation - appreciate that. We have been to all the areas you mentioned - shown round by our Fab real estate agent Paul who lives Garrucha . So far our favourite place is Beda but we still have more exploring to do so will be renting for a while to give us time.


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## GallineraGirl (Aug 13, 2011)

zenkarma said:


> The additional allowance is not determined by the type of pension.
> 
> A single person would get a personal allowance of &#128;5,151 to offset against any type of income before tax liability. In addition to that personal allowance you would also get an earned income allowance (which includes pension income) of &#128;4,080 for earnings up to &#128;9,180 and &#128;2,652 for earnings over &#128;13,260. There's a sliding scale that operates between those two figures.
> 
> Occupational and UK state pensions are all taxable in Spain if you are a fiscal resident there regardless of how the contributions were made. A purchased annuity is taxed differently. UK Government service pensions such as civil service, police, fire brigade, armed services etc are only allowed to be taxed in the UK and are therefore not subject to Spanish taxation.


Thank you for the very clear information. I do have a small annuity ( from free standing additional voluntary contributions ). Do you know at what rate this is taxed at? Also, what is the position regarding the lump sum (tax free in England) that I will receive when I get my Government pension (Teacher's). Since my pension will be taxed in England, do I have to declare the lump sum on my Spanish tax return and pay tax on it?


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## zenkarma (Feb 15, 2013)

GallineraGirl said:


> I do have a small annuity ( from free standing additional voluntary contributions ). Do you know at what rate this is taxed at?


The guidelines regarding purchased annuities are complex and I'm not even sure an AVC would qualify. A lot depends on when the contributions were made, the type of scheme, whether your employer contributed and at what age the annuity is taken out. 

I just don't know enough about this to be able to give you any more information I'm afraid. 

This is what I found on purchased annuities:

A purchased annuity is taxed very favourably in Spain. Only a proportion of the annuity income is taxed in Spain according to the age of the recipient when the annuity is vested i.e. a binding contract is entered into to purchase the annuity, and that proportion is taxed at a flat rate of 18%. The tax-free element can be very generous, up to 88% on a whole of life annuity, if taken when over 70.

Such treatment normally only applies to annuities acquired inheritance, legacy or succession. If an employer has ever contributed to the fund, and the fund was built up during the working life of the individual, the annuity treatment is unlikely to be available.

A purchased annuity is where you have paid a lump sum to an insurance company in return for an income for either a specified period of time, or for the remainder of your life. On a whole of life annuity, on death, a reduced income is usually provided for your spouse for the rest of his/her life.

Often with a private pension the Trustees have purchased an annuity on your behalf. If the pension is recorded on your self-assessment tax return in Spain as an annuity, it may be accepted as such and a proportion may be tax-free.

However, this is a grey area in Spanish tax, because of the confusion over the meaning ‘purchased annuity’ in Spain and there is no guarantee that such treatment will be given. Spanish tax inspectors and accountants can, and frequently do, take different views on the matter, and this can vary from region to region, and even within the same region. If your Trustees have bought an annuity on your behalf, even though you didn’t purchase it directly, you may be able to claim the annuity treatment, although this will depend on your accountant, and also the tax inspector. If you do not make a claim for the annuity treatment, or your claim is not successful, your pension income will be taxed as occupational/State pension income.​


GallineraGirl said:


> Also, what is the position regarding the lump sum (tax free in England) that I will receive when I get my Government pension (Teacher's). Since my pension will be taxed in England, do I have to declare the lump sum on my Spanish tax return and pay tax on it?


Yes you would have to declare the lump sum and it would be taxed as capital gains if you were a fiscal tax resident in Spain within the same tax year as you received the lump sum.

Some teacher government pensions are treated the same as civil service and would not be subject to Spanish tax. Which ones I have no idea, you would need to check on this.

It sounds to me like you need to speak to a specialist Spanish tax adviser!


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## GallineraGirl (Aug 13, 2011)

Yes, I think that you are right! If my lump,sum is treated as a 'capital! gain' presumably I would need to know how much I paid into the scheme and how much of that was for the lump sum part of the pension. Eek! I wonder if there are any other ex teachers/government employees who are forum members and who have been through the process of receiving their lump sum whilst resident in Spain? I would be very interested to hear from them.

Many thanks for your help.


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## zenkarma (Feb 15, 2013)

GallineraGirl said:


> If my lump,sum is treated as a 'capital! gain' presumably I would need to know how much I paid into the scheme and how much of that was for the lump sum part of the pension.


I don't think so. I think it's just treated as a capital gain and taxed on these rates:

€0 - €6.000 21%
€6.000 - €18.000 25%
more than €18.000 27%

You really don't want to get caught for Spanish capital gains tax on your pension lump sum. Just ensure you're not a Spanish fiscal resident when you receive it.

Also, check out your teacher pension, you might find it's not taxable in Spain, many of them are treated in the same way as a government civil service pension.


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## CapnBilly (Jun 7, 2011)

Think you need to seek proper advice, as I am not sure I agree with Zens original post about lump sums and annuities.

Assuming your pension is a a government pension (under the DTA- which I think it is), then my understanding is that a lump sum will not be taxed in Spain. This is because it is effectively a commutation of your pension, and the DTA is quite clear that pensions and other remuneration, paid out of government created funds, are only taxable in the UK. 

Having said that I have posted before about changes to the DTA, which if it drawn next year, may affect the marginal rate of tax on any other income which may be taxable in Spain. 

With regard to an annuity purchased from AVC's, I think these are treated beneficially. They are contributions you have made, and then an annuity has been purchased on your behalf, or by you. So you have fulfilled the requirement to receive a regualr income in return for a payment of capital, and the law, as I read it, is different to what Zen posted. The actual law says

_In the case of immediate annuities, which have not been acquired by inheritance, bequest or inheritance any other title, shall be considered as investment income the result of applying each annuity the following percentages:_

and then it details the percentages depending upon the age when you took it.

Thats always been my understanding, but I don't know the source of Zens info.


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## zenkarma (Feb 15, 2013)

CapnBilly said:


> ...but I don't know the source of Zens info.


Taxing UK Pensions in Spain | AngloINFO Spain

How UK pensions are taxed in Spain - Spanish Property Insight


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## Stravinsky (Aug 12, 2007)

zenkarma said:


> Taxing UK Pensions in Spain | AngloINFO Spain
> 
> How UK pensions are taxed in Spain - Spanish Property Insight



Thats a bit ambiguous I guess, as it state separately that Government pensions are taxed in the UK, but doesnt really differentiate when it comes to lump sums


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## crookesey (May 22, 2008)

This sort of thing enforces my belief that all contentious gains should be settled in the UK in a Spanish tax year prior to the one that you intend to settle in Spain.


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## zenkarma (Feb 15, 2013)

crookesey said:


> This sort of thing enforces my belief that all contentious gains should be settled in the UK in a Spanish tax year prior to the one that you intend to settle in Spain.


Indeed. A suggestion I've already made! It makes life far simpler for everyone really.


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## zenkarma (Feb 15, 2013)

Stravinsky said:


> Thats a bit ambiguous I guess, as it state separately that Government pensions are taxed in the UK, but doesnt really differentiate when it comes to lump sums


Some government pensions are taxed in the UK but some are also liable to Spanish tax as well.

The only government pensions that are unable to be taxed in Spain are the one's I've already mentioned and that includes some teacher pensions. Other teacher pensions however are liable to Spanish tax and a lump sum would be treated as a capital gain in Spain.


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## CapnBilly (Jun 7, 2011)

zenkarma said:


> Some government pensions are taxed in the UK but some are also liable to Spanish tax as well.
> 
> Not quite sure what you mean by this. Could you expand on it





zenkarma said:


> The only government pensions that are unable to be taxed in Spain are the one's I've already mentioned and that includes some teacher pensions. Other teacher pensions however are liable to Spanish tax and a lump sum would be treated as a capital gain in Spain.


I agree with that, if the pension is not considered a government pension, but I'm still not clear whether you think a lump sum from a government pension is taxable in Spain.


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## zenkarma (Feb 15, 2013)

CapnBilly said:


> Not quite sure what you mean by this. Could you expand on it


I was basically referring back to my post #8 in this thread, specifically:

Occupational and UK state pensions are all taxable in Spain if you are a fiscal resident there regardless of how the contributions were made. A purchased annuity is taxed differently. UK Government service pensions such as civil service, police, fire brigade, armed services etc are only allowed to be taxed in the UK and are therefore not subject to Spanish taxation.​
Aka, some government pensions, ie UK Government Service Pension are only taxable in the UK, and some are liable to Spanish tax as well, ie UK State Pension and occupational pension schemes.

Perhaps I didn't make it very clear but I don't like to keep repeating myself!



CapnBilly said:


> I agree with that, if the pension is not considered a government pension, but I'm still not clear whether you think a lump sum from a government pension is taxable in Spain.


If the pension lump sum does not fall into the categories I've already stated, ie UK government service pensions such as civil service, fire, police, armed services and _some_ teacher pensions then it's taxable in Spain.

The real question here is which category GallineraGirl's teacher pension falls into because as I've previously mentioned, some teacher pensions are exempted from tax in Spain but some aren't depending on the type of pension.


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## CapnBilly (Jun 7, 2011)

zenkarma said:


> Aka, some government pensions, ie UK Government Service Pension are only taxable in the UK, and some are liable to Spanish tax as well, ie UK State Pension and occupational pension schemes.


I don't agree with that. A pension is either taxable in the UK only I.e a government pension, or it's taxable in Spain I.e state or occupational pension . I'm not aware of a y that are taxable in both.

QUOTE="zenkarma;1777962"]
If the pension lump sum does not fall into the categories I've already stated, ie UK government service pensions such as civil service, fire, police, armed services and some teacher pensions then it's taxable in Spain.[/quote]
I agree with that, but that wasn't the way I understood your response to Gallonera Girl, and having reread it I still don't. Sorry ifi've misunderstood

QUOTE="zenkarma;1777962"]
The real question here is which category GallineraGirl's teacher pension falls into because as I've previously mentioned, some teacher pensions are exempted from tax in Spain but some aren't depending on the type of pension.[/QUOTE]
I agree with that


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## zenkarma (Feb 15, 2013)

CapnBilly said:


> I don't agree with that. A pension is either taxable in the UK only I.e a government pension, or it's taxable in Spain I.e state or occupational pension . I'm not aware of a y that are taxable in both.


Okay. 

So you have a pension (that is not exempt from Spanish taxes) that produces £25,000 a year. For hypothetical sakes, your tax liability to HMRC is £5,000 and your tax liability to the Spanish Hacienda is the equivalent of £8,000 in euros. You're saying that due to the DTA you don't pay the Hacienda £8,000 minus £5,000 = £3,000 equivalent in euros.

Is that correct? Is that what you are saying?



zenkarma said:


> I agree with that, but that wasn't the way I understood your response to Gallonera Girl, and having reread it I still don't. Sorry ifi've misunderstood


That depends entirely on which piece of advice you're referring to. Bear in mind that GallineraGirl didn't reveal what government pension she was referring to till part way down the thread. Neither did she make it clear whether her teacher pension was one excluded from Spanish taxation.

It's still not clear whether her teacher pension is excluded from Spanish taxation.

She now has sufficient information to go away and find out whether her government teacher pension is liable to Spanish taxation and whether her lump sum would be liable to capital gains tax. So any further discussion on this is somewhat moot I think.


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## CapnBilly (Jun 7, 2011)

zenkarma said:


> Okay.
> 
> That depends entirely on which piece of advice you're referring to. Bear in mind that GallineraGirl didn't reveal what government pension she was referring to till part way down the thread. Neither did she make it clear whether her teacher pension was one excluded from Spanish taxation.
> 
> ...


I was referring to your post 11, where in response to her question 

_Also, what is the position regarding the lump sum (tax free in England) that I will receive when I get my Government pension (Teacher's). Since my pension will be taxed in England, do I have to declare the lump sum on my Spanish tax return and pay tax on it?_

you replied

_Yes you would have to declare the lump sum and it would be taxed as capital gains if you were a fiscal tax resident in Spain within the same tax year as you received the lump sum._

Now, I don't think you meant that, as I think (but I might be wrong), that you agree that lump sums from a government pension, are not taxable in Spain.

Also, my understanding is that teachers pensions are generally considered to be government pension (assuming its a state school pension), and only pensions from a private or fee paying school are not, which I think makes sense, so the majority of teachers pensions are probably exempt. I must admit, your is the first post I have seen where teachers were singled out as usually its the health service pensions which cause the problem.

I'm sorry to go on about this, as, although I agree its a moot point as far as GallerinaGirl is concerned, but my reason is that lots of people look at the forum and threads, but not all post, so if there is disagreement or confusion, its not helpful. If you look at this thread there are 22 posts, but 462 views.


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## CapnBilly (Jun 7, 2011)

zenkarma said:


> Okay.
> 
> So you have a pension (that is not exempt from Spanish taxes) that produces £25,000 a year. For hypothetical sakes, your tax liability to HMRC is £5,000 and your tax liability to the Spanish Hacienda is the equivalent of £8,000 in euros. You're saying that due to the DTA you don't pay the Hacienda £8,000 minus £5,000 = £3,000 equivalent in euros.
> 
> Is that correct? Is that what you are saying?


I think we need to clarify this, as , although I agree thats what generally happens in practice, it is, in fact, incorrect.

Firstly, a pension is either taxable only in the UK i.e a government pension, or it is taxable only in Spain i.e a state or occupational pension. There are no pensions that are taxable in the UK and Spain.

The first rule is that all pensions paid in the UK (both government and private and state) are all taxable in the UK. However, if there is a double taxation agreement with the country where you are resident, then that is what applies. So, if you a re a resident in Spain, then 

the DTA between Spain and the UK says

1. All government pensions are taxable ONLY in the UK (we'll ignore the new DTA for this discussion)

2. All other pensions are taxable ONLY in Spain

This means as far as no 2 is concerned you should declare and pay tax on your pension in Spain. You should not pay tax in the UK, and then claim an offset on your spanish return. This is clearly covered in the DTA which covers double taxation, and says :

_Where a resident of Spain derives income or owns elements of capital which, in accordance with the provisions of this Convention, may be taxed in the United Kingdom, Spain shall allow: 

(i) as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in the United Kingdom;_

The key words in this clause are 

"in accordance with the provisions of this convention, MAY be taxed in the UK"

As I've already said, pensions such as the state pension are taxable ONLY in Spain, and theoretically you should pay the tax due and reclaim it from the UK.

Now, when times were good, Spain didn't bother about this, and all the professional advice was to do as you have described, but now they are looking to increase the tax revenue, they are wising up to this, and there are reports that they are checking up, and demanding that people pay the full tax due, and reclaim it from the UK. Its quite easy to do, and you reclaim it on the same form as you apply for an NT (No tax) code (form Spain Individual). 

The key point here is that they can go back 4 years, so if they pick your return, you could be asked to pay the tax for 4 years (plus fines and interest) and then claim it back from the UK.

Far better in my view to sort it put at the beginning.


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## zenkarma (Feb 15, 2013)

CapnBilly said:


> I'm sorry to go on about this, as, although I agree its a moot point as far as GallerinaGirl is concerned, but my reason is that lots of people look at the forum and threads, but not all post, so if there is disagreement or confusion, its not helpful. If you look at this thread there are 22 posts, but 462 views.


Well I'm happy to leave these kind of posts for to you to answer in the future then as you clearly consider yourself to be an expert in them.


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## CapnBilly (Jun 7, 2011)

I wouldn't say i'm an expert, but i have read the laws on these matters, so I do have a good understanding, but sometimes you may have more information, or look at from a different perspective. Thats what i thought these discussion forums were about. I have learnt a lot from them.

I think you write great posts and i wouldn't want you stop posting replies on my account.

I'm sorry if i misunderstood your posts.


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## GallineraGirl (Aug 13, 2011)

Thank you for all your comments. I will obtain professional advice when I claim my Teacher's Pension next year and then report back to the forum.


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