# Tax in Spain



## kelly (Oct 7, 2007)

My friend, who is a pensioner, is coming to spain. Before he gets his pension it is taxed. If he stays for any length of time, he will have to apply for residency. Does this mean he be expected to pay tax to the spainish authorities also?

Regards Kelly


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## Stravinsky (Aug 12, 2007)

kelly said:


> My friend, who is a pensioner, is coming to spain. Before he gets his pension it is taxed. If he stays for any length of time, he will have to apply for residency. Does this mean he be expected to pay tax to the spainish authorities also?
> 
> Regards Kelly


You have no legal choice but to file for a residents certificate within 30 days of having arrived here with the intention of residency. Only Civil Service pensions are enforceably taxed in the UK. State and private pensions are taxed in your country of residence. Your friend should apply for UK tax exemption certificates before he leaves, as he will have to declare tax in Spain. However, the Spanish tax system and allowances are set up so that if your friend is on a state and medium pension in the UK, it is quite likely that he will pay no tax at all here. 

He will not have to pay tax in both countries although there may be a short changeover period, but he can claim any double payments back


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## kelly (Oct 7, 2007)

Thank you very much for your knowledgeable replies. As I understand it, my friends teachers pension, which is taxed here, could become exempt from UK tax with the appropiate forms. Are you suggesting ,therefore, that the best way forward would be for him to open a spanish bank account and get his uk pension transfered directly there. Or does it really not matter if he keeps his Uk bank account.


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## Stravinsky (Aug 12, 2007)

kelly said:


> Thank you very much for your knowledgeable replies. As I understand it, my friends teachers pension, which is taxed here, could become exempt from UK tax with the appropiate forms. Are you suggesting ,therefore, that the best way forward would be for him to open a spanish bank account and get his uk pension transfered directly there. Or does it really not matter if he keeps his Uk bank account.


Well, as I understand it, it is possible to have a state pension paid to a Spanish Bank, but there are numerous currency exchange companies that will do it free of charge.

Currencies direct is one.

I currently have funds paid to a UK bank and draw it accross, but he will need a Spanish bank over here anyway just for day to day living. I'd keep a UK bank account and credit card, as you won't be able to open one in the UK with ease (if at all) once he is resident in Spain. 

You are correct, the Teachers Pension will become tax free in the UK.


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## hammers fan (May 3, 2009)

*teachers pension:*



Stravinsky said:


> Well, as I understand it, it is possible to have a state pension paid to a Spanish Bank, but there are numerous currency exchange companies that will do it free of charge.
> 
> Currencies direct is one.
> 
> ...


re. teachers pension: HMR&C have written to me to say my teachers pension is taxable in England and as a government pension must be taxed at source so tax is deducted by them even though I have sent them relevant documents - residency docs. any commentsand double taxation


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## hammers fan (May 3, 2009)

re. teachers pension: HMR&C have written to me to say my teachers pension is taxable in England and as a government pension must be taxed at source so tax is deducted by them even though I have sent them relevant documents - residency docs. and double taxation.
any comments


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## jojo (Sep 20, 2007)

I cant help as I know nothing about pensions, but Strav does and is very knowledgable! However, we are regularly visited by a chap who actually works for the DWP in Spain and he´ll know the answers and will probably help you sort it out????

So keep an eye on here for him


Jo xx


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## Stravinsky (Aug 12, 2007)

hammers fan said:


> re. teachers pension: HMR&C have written to me to say my teachers pension is taxable in England and as a government pension must be taxed at source so tax is deducted by them even though I have sent them relevant documents - residency docs. any commentsand double taxation


Yes thats correct, a government pension must be taxed at source, although I didnt realise that extended to teachers pensions.

So ....... the clever person would allow it to be taxed in the UK and get the UK tax allowance on it, and then move their state pension to Spain and take advantage of the tax allowance here  Result: minimal tax


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## ivorra (Sep 24, 2008)

Stravinsky said:


> Yes thats correct, a government pension must be taxed at source, although I didnt realise that extended to teachers pensions.
> 
> So ....... the clever person would allow it to be taxed in the UK and get the UK tax allowance on it, and then move their state pension to Spain and take advantage of the tax allowance here  Result: minimal tax


How does that work? A resident of Spain is taxed on his or her world wide income. As a concession to prevent double taxation of the same income, tax paid in the UK can be set against your Spanish tax bill. Ultimately, your annual tax liability is calculated when the Renta is filed. If by virtue of a good personal allowance in the UK you have paid less tax there, then that is so much less to set against your tax liability in the Renta - the total tax bill in Spain still has to be met.


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## EP GAZZ (Aug 26, 2008)

Spain I thought but I am no expert was like USA you pay tax on world wide income.

We will be living in Spain but I will be paid in USA to my US bank and I am sure Uncle Sam will want to tax me


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## Stravinsky (Aug 12, 2007)

ivorra said:


> How does that work? A resident of Spain is taxed on his or her world wide income. As a concession to prevent double taxation of the same income, tax paid in the UK can be set against your Spanish tax bill. Ultimately, your annual tax liability is calculated when the Renta is filed. If by virtue of a good personal allowance in the UK you have paid less tax there, then that is so much less to set against your tax liability in the Renta - the total tax bill in Spain still has to be met.


It works because the governments of Spain and the UK have agreed that a Government pension will always be taxed in the UK, and in effect ignored in Spain.

Its just playing the game. You dont need to even mention the UK Government pension to the Hacienda, they are not interested.


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## hammers fan (May 3, 2009)

thanks for the insight into the pension scam; I should have known there was no way to escape the British taxes
Hammers fan


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## Stravinsky (Aug 12, 2007)

hammers fan said:


> thanks for the insight into the pension scam; I should have known there was no way to escape the British taxes
> Hammers fan


Err ..... its not a scam, its perfectly legal to take advantage of the separate personal allowances


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## hammers fan (May 3, 2009)

Stravinsky said:


> Err ..... its not a scam, its perfectly legal to take advantage of the separate personal allowances


not a scam by us but a scam by the government to get as much dosh out of us as possible


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## SunnySpain (Jul 30, 2008)

ivorra said:


> How does that work? A resident of Spain is taxed on his or her world wide income.


That's often said, but NOT accurate.


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## ivorra (Sep 24, 2008)

How does that work? A resident of Spain is taxed on his or her world wide income.
It works because the governments of Spain and the UK have agreed that a Government pension will always be taxed in the UK said:


> That's often said, but NOT accurate.


Does anyone know if there is an accepted (by Hacienda) definition of what constitutes a UK Government Pension for the purpose of exemption from the Spanish taxation regime? I can think of at least three classes of pension, which might be considered as such e.g

1. UK National Insurance Pension - paid direct by the government to everyone who has met the NI stamp criteria, irrespective of where they worked or if they worked.

2. The Civil Service Pension - paid to retired civil servants directly from government funds.

3. The independent pension schemes of state education sector teachers, local government workers, university staff and so on.

Bearing in mind that for all but 1. above, tax will be paid at (UK) source unless a specific request is made to the Inland Revenue to permit the pension fund to pay the pension gross on the basis on non-residency.


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## Stravinsky (Aug 12, 2007)

ivorra said:


> Does anyone know if there is an accepted (by Hacienda) definition of what constitutes a UK Government Pension for the purpose of exemption from the Spanish taxation regime? I can think of at least three classes of pension, which might be considered as such e.g
> 
> 1. UK National Insurance Pension - paid direct by the government to everyone who has met the NI stamp criteria, irrespective of where they worked or if they worked.
> 
> ...


You can change tax on 1 by either getting a certificate of tax payment in Spain from the hacienda, or by getting a form FD9 from the Inland revenue site which is then stamped by the hacienda here and returned to the UK HMRC. This will mean you pay no tax on your state pension.

For 2, this will ALWAYS be taxed in the UK. No way around it

3 - Have to be honest I am not sure if this is classed the same. The company that deals with Govt pensions is something like Avensis, and thats a good pointer


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## ivorra (Sep 24, 2008)

Stravinsky said:


> You can change tax on 1 by either getting a certificate of tax payment in Spain from the hacienda, or by getting a form FD9 from the Inland revenue site which is then stamped by the hacienda here and returned to the UK HMRC. This will mean you pay no tax on your state pension.
> 
> For 2, this will ALWAYS be taxed in the UK. No way around it
> 
> 3 - Have to be honest I am not sure if this is classed the same. The company that deals with Govt pensions is something like Avensis, and thats a good pointer


Regarding my point 1, if the pensioner is already a fiscal resident of Spain when the State Pension payments start, the payments can be set up to be paid gross direct to the pensioner's Spanish bank account. This is without recourse to the declaration FD9 - I speak from personal experience of this.

Regarding other, non-ostensibly State Pensions, these will be taxed at source under 'PAYE' unless the pension fund administrators in the UK receive permission from HM Revenue to pay the pension gross (irrespective of whether it is paid to a UK or Spanish bank account). Permission for the payments to be made without deuction of UK tax can only be given if the pensioner, (as a fiscal resident of Spain) has completed the Form FD9 and had it authenticated by the Hacienda and returned to HM Revenue. Again I speak from personal experience although my company pension goes not fall in to any of the categories I list in my point 3.

I remain convinced that there is no legitimate source of pension income that the pensioner can omit from his/her Renta declaration.


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## Stravinsky (Aug 12, 2007)

ivorra said:


> I remain convinced that there is no legitimate source of pension income that the pensioner can omit from his/her Renta declaration.


Well if you have a government pension then I suggest you declare it to the Spanish authorities . Me ...... I'll just take the advice offered by my Spanish Tax Gestoria

You could always show it as a taxable amount and then a dedcuctable if you wanted to feel better about it


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## ivorra (Sep 24, 2008)

Stravinsky said:


> Well if you have a government pension then I suggest you declare it to the Spanish authorities . Me ...... I'll just take the advice offered by my Spanish Tax Gestoria
> 
> You could always show it as a taxable amount and then a dedcuctable if you wanted to feel better about it


Well...I do - take the Gestoria's advice - and I have! (declared my pension). But my pension could not remotely be described as a 'government pension'. I have been in regular employment for much of my eight years here with the usual I.R.P.F deductions monthly on the nomina and there is always a horrible reckoning in June when the two sources of income and two sets of tax deductions meet in the Renta.

Still not sure about the UK State Pension tho'.... Presumably if you are a UK tax payer and you have other sources of income in addition to the State Pension, then it is automatically included in the calculation of your tax coding by the Inland Revenue since they (or a branch of that vast dept) are paying it out anyway. If your only source of income is the State Pension then there probably is no tax to pay since your total income won't reach the Personal Allowance. But if the UK State Pension is paid direct to a Spanish bank account and you have other sources of income which bring you above the Personal Allowance (plus other allowances) here, then the State Pension must form part of your Spanish taxable income. After all, there is nothing to show from Inland Revenue that any tax has been paid on the State Pension.


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## Stravinsky (Aug 12, 2007)

ivorra said:


> Well...I do - take the Gestoria's advice - and I have! (declared my pension). But my pension could not remotely be described as a 'government pension'. I have been in regular employment for much of my eight years here with the usual I.R.P.F deductions monthly on the nomina and there is always a horrible reckoning in June when the two sources of income and two sets of tax deductions meet in the Renta.
> 
> Still not sure about the UK State Pension tho'.... Presumably if you are a UK tax payer and you have other sources of income in addition to the State Pension, then it is automatically included in the calculation of your tax coding by the Inland Revenue since they (or a branch of that vast dept) are paying it out anyway. If your only source of income is the State Pension then there probably is no tax to pay since your total income won't reach the Personal Allowance. But if the UK State Pension is paid direct to a Spanish bank account and you have other sources of income which bring you above the Personal Allowance (plus other allowances) here, then the State Pension must form part of your Spanish taxable income. After all, there is nothing to show from Inland Revenue that any tax has been paid on the State Pension.


It doesnt really matter if your state pension is paid into a UK or a Spanish account, if you are a tax resident here then its taxed here in Spain. You'd normally need to de register for tax in the UK as I mentioned before. Your income theoretically in the UK and Spain (or indeed anywhere) are all lumped into the tax burden here I'm afraid.

The anomaly is though, as I outlined before, the authorities here arent interested in the Government Pension as they know its taxed in the UK at source.

If, for instance through circumstances, you were still paying tax on your state pension in the UK and here, then you could claim that tax paid in the UK back here. This sometimes happens in the changeover period when you have de registered for tax in the UK


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