A post from Anne Marsh on Ladies of Spain
Do I have to do a return?
Yes you do unless the hacienda expressly says you don’t, the income limits for declarations are only for people who are employees of Spanish companies where their tax is reported automatically like in the UK when normally as a paye employee no return was required unless there was other income involved.
Sometimes on completing a return it shows as no obligado (even if there is tax to pay) but until you have completed the return you don’t know that is the case, I always screenprint the no obligados just in case in the future the hacienda comes back on an old year.
Crown Pensions
Crown pensions (civil service local authority forces etc) remain taxable in the UK but since the 2015 renta the income must be declared, there are still many gestors etc who incorrectly do not declare crown pensions. It is also worth getting a letter from the pension provider to state that it is a crown pension, the Hacienda uses the list from the internal HMRC International manual, and this is where the system falls down, it blithely states local authority pensions are crown pensions, unfortunately it does not go on to list the 89 local authority pensions under this umbrella, so a pension from say Lambeth Council will raise a question with the hacienda, I have letters for all of my clients sitting there should I need to have them officially translated to confirm it is a crown pension, another is the RAF where the P60 is issued by Paymaster 1836 Limited with no indication that it is a crown pension when the Hacienda ask HMRC for the P60s.
State/private/occupational pensions
Another piece of incorrect information is that UK tax paid can be deducted from the Return, totally incorrect, the double tax treaty clearly states that private occupational and state pensions are only taxable in Spain, in the first year this is tough as the tax has to be paid here in full before the Hacienda will stamp the Spain Individual and issue the certificado residencia fiscal en España Convenio (Convenio being the important word as that means you are covered by the double tax treaty) Once these forms are returned to the UK then HMRC will sort out your closing tax returns and refund any UK tax paid while tax resident in Spain.
The only time UK income tax can be deducted is if you physically work in the UK eg do care work and fly backwards and forwards.
SIPPS/Drawdown pensions tend to be treated as capital gains in Spain.
Allowances
The allowances in Spain are all over the place the single persons allowance is between 5550 and 8100 and is age dependent, Unlike the UK this allowance is not taken off income, the tax is calculated from a zero base and then you are given a tax credit at basic rate against the tax bill previously calculated.
In addition, there is an earned income allowance of 2k against earnings and pension income, this one however is taken off income before calculating the tax.
There is also a sliding scale of low income taper relief for earnings between 9k and about 16k
Do I do a joint or single return?
Married couples always complete one return, there are 3 columns, husband wife and combined the hacienda system then takes over and calculates whether you are better taxed singly or as a couple.
Payment
The deadline for submission for automatic collection is 25th of June, after that it has to be paid over the counter at a bank and the absolute payment deadline is 30 June, 1 day late and there are penalties for late payment. If you wish to pay automatically you must ensure that your bank account is a residents bank account and is registered on your nie number as that is what the hacienda uses to create the collection run, so if your account is still registered on your passport you need to change it over.
You can choose to pay the tax 100% on 30 June or 60% 30 June and 40% normally around 5 November.
What period does it cover?
The return is for the calendar year so 3/12 of your P60 for the UK tax year 20/21 and 9/12 of the P60 for 21/22, The deadline for Companies to issue P60s in the UK is 31 May so it can be a bit of a mad rush to complete the returns.
Capital gains tax on property sales.
This has become a big problem post 31/12/2020 for many people. Since then there has been no rollover relief on the sale of your main home in the UK and the purchase of a new home in Spain (within 2 years) , as relief is restricted to EU and EEA countries. It is always payable on the sale of non principal private properties, and UK capital gains tax paid can be offset against the Spanish liability, but I have seen big tax bills flying around as Spanish CGT is nowhere near as friendly as the UK.
After 40 years of dealing with HMRC I actually prefer dealing with the Hacienda (unless they are being remarkably silly, and some offices are, I won’t name any but normally have fun with Alicante/Elche area tax offices who sometimes don’t know their nose from their feet).