Tax on UK Pensions?

My husband and I will be retiring to Spain in a couple of years when we are both receiving our UK State pension.

Will the Spanish goverment tax us on these pension payments?

Yes, unless tax has already been stopped at source, ie by that Lovely Darling man who took over Gordon the Grabbers office.  Spain and UK have a reciprocal agreement so if you get your pensions after tax, they won't tax it in Spain.  If you receive it without tax you have to declare it with your other income and it will be liable for Spanish taxes.

You do get a tax free allowance depending on your age.  Have a look further down and you will see some threads with the amount you are allowed to receive (each) before tax kicks in.

Thanks very much for that.

Can I then presume that as we are not taxed on our State pension we will not be taxed in Spain then?

Can I also presume that we may be taxed on any private pension?

All pension whether state or private are subject to income tax. Your personal allowance is used to offset against the pension you are paid, if there is more pension than allowance you will be taxed, either in the UK or in Spain, but not both. There is no way round that one I'm afraid - 2 certainties in life, one of which is taxes!

As I remember there is a thread which gives some detail regarding which country is best for retiree's, I think that the UK actually came out best as far as tax on pensions is concerned. It would be worth doing a search for the answer as I believe the difference was quite considerable. A reputable IFA with specialties in retirement planning may be worth the investment.

 

These are the tax bands used in Spain.  Note that the Spanish tax year is 1st Jan to 31st Dec NOT 6th April to 5th April.  Anyone resident in Spain for over 183 days are liable to fill in a tax return.  Pensions from public services (Civil Service, Forces) etc are not liable to tax in Spain.

Taxable Base	Tax	Rate Band	Marginal %
0	0	4000	15
4000	600	9800	24
13800	2952	12000	28
25800	6312	19200	37
45000	13416	-	45

Deductions from Income:

Single Person €3400
Married persons €6800
First Child €1400
Second Child €1500
Third Child €2200

People over 65 add €800 to each persons personal allowance.

If you have had your pension taxed at source in UK, provide copies of your annual P60 to show that tax has been paid and you will not be liable to further taxation in Spain.

Sorry to be such a pain, but as our pensions will be our only means of income, I need to be sure about this.

We expect to have the following £ per month as pensions.  Could you tell me how this would pan out regarding tax?

Husband ..... £753 per month  €1092 approx

Self .............. £ 676 per month approx.  €980 approx

 

bobaol gave us some figures previously which illustrate the tax situation with a given income, pension, both in Spain and in UK. This can be found in the thread 'Is it cheaper to live in Spain' dated 24 Feb 2007. It certainly opened my eyes.

http://www.eyeonspain.com/Secure/ForumPosts.aspx?thread=20&dev=FB25&name=Cost+of+living+in+Spain

 

This message was last edited by noelandwilma on 7/5/2007.

Thanks Noelandwilma,

I need all the info I can get as this is driving me mad!

My husband keeps on about it all the time - questions, questions, questions, and I am trying to find out the information.  So basically, we will have to pay tax on our pensions then!

Is anyone else out there surviving on an English State pension?

Winemama

If you state pensions iare as you say, the tax allowance for a person over 65 is £7,550, theref ore you will be paying tax on it regardless of where you live.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4015583

Lots of other info on this site

John

This message was last edited by johnone on 7/5/2007.

The following are approximate amounts and I advise you to contact a Financial Advisor to get the right figures.  Based on your joint income (assuming you are over 65 and without a public service pension) in Spain you will be liable for tax as follows:

Joint Income €24,000 pa approx

Free of tax   €8,400 leaving €15,600 taxable

First 4000 at 15% is 600

Next 9800 at 24% is 2340

Final 1800 at 27% is 504

Total tax payable in Spain is €3404 or around £2,300 per year.

In UK, tax allowance is £7550 each or £15,100.  Leaving £2000 taxable at 10% (this year) or £200 a year.

Next year, it will be taxed at 20% so tax liability for the year is £400.

Therefore, declare your income to the UK tax man if you can.  Keep your tax statements to show you have received your pension net of tax and you will not have to pay the Spanish tax man.  Yes, taxes really are higher in Spain.

A really big thank you to all the people who have replied to me so far - it's all been really helpful information.

We are in the pre-stage payment area at the moment so are trying to gather as much info as we can before making that final step of commitment.  However, I do think that step will be taken and we are looking forward to our new lives out there.

Thanks again to all.

The UK tax allowance of £7550 is applicable only if you have no state pension - as I found out to my disgust. If - like me - you have a state pension of £5000 a year, then this amount is deducted from your personal allowance. So in my case everything I get over £2550 is taxed up to the hilt. You will have to do the sums again, it may be more cost effective to be taxed in Spain after all.

From your explanation you are still getting your £7500 personal allowance, you're getting your £5000 state pension gross and the remaining £2500 allowance is used on your private pension/earnings.

The time to start worrying is if your tax code of your private pension/earnings is BR and your state pension is less than your personnal allowance.

BR means Basic Rate of tax and tax would have been deducted on the whole amount, as long as your pay slip gives a numbered code ie 250l then your tax is being deducted correctly.

Everyone receives their state pensions gross, I recently helped my sister claim her state pension after her husband died.  Using his contributions she was entitled to a pension which is a fraction over her personnal allowance.  She also gets a widow's pension from his employer and her tax code ends in a K as she has to pay tax on all the occupational pension plus the excess on her PA.

So it looks like everyone will be better off taxed in the UK. I still think it's a rip off. If your state pension isn't taxable it shouldn't be counted in your allowances.

Unfortunately everyone has to pay tax, how much depends on the amount of income you have coming in.  Your state pension is an income so is liable to taxation should it exceed your personnal allowance. 

My Brother in Law worked with someone who would calculate how much overtime he could do before his earnings reached the next tax bracket but forgot to include the dividends he received on savings.  He got a nice tax bill going back a number of years.

I retired from work early and lunch regularly with friends in the same situation.  When they reached 60 there was a lot of grumbling around the table about tax codes, but I think that was mainly because the two tax areas don't talk to each other.  When one of the group reached 65 she didn't benefit from the higher personnal allowance, not quite sure why will have to investigate further.

I'm still a couple of years away from state pension so I don't get too involved.  I only know about my sister's situation as I had deal with it to explain it so that she could understand it.

That's how I know that two tax areas do not talk to each other.  It took me two months to sort out her pension, luckily she received her widow's pension immediately.  There was a problem with the tax code on her widow's pension but now it's correct. 

We thought we had dealt with everything and she was coping as well as anyone can after loosing your husband after 45 years of marriage.  Then she received a letter from the tax man saying that she had underpaid tax due to the mix up with the codes, not to worry though we will send you a tax form to fill in at the end of the year.

My sister's case was an easy one to sort out, can you imagine what the same story would be sorting it out with the Spanish authorities!

 

 

 

Surely though, the state pension being circa £140 per week for a couple means that you won't be taxed unless you have other income?

 

Scratch that.

The pension is pounds and you are talking about allowances in euros. Therefore you would be taxed on the difference.

So you would pay 15% of approx 3000€.

This message was last edited by Lauryc on 10/19/2007.

It all depends on your age as to what your personnal allowance (p/a) will be.  If all you have is a state pension then married or single your p/a should mean that it will be paid gross. 

The problems arise if you also receive a private pension as a good chunk of your p/a is taken up by your state pension.  Any additional unearned income such as savings will be taxed at source using the current rate

Have a look of the Inland Rev site as I found this very helpful when dealing my sister's affairs. 

So does anyone know the answer to this scenario then?

Husband and self will be moving to Spain permanently next year.  We will be aged 73 and 60 and both drawing UK State Pension, plus a very small private pension each.

Question is, does anyone know the tax allowances in Spain for a married couple, and at what rate we will be taxed on those UK pensions?

My next door neighbours have been living in Spain for nearly 20 years, their state pension is paid into their bank account in Spain and they do not pay tax in UK or Spain as they don't earn enough.

In fact as low earners they receive a payment from Torrevieja each year around 300 e I think.

The other solution would be to have your money into a bank account here in UK and withdraw the funds when you need them.  If you open up a Nationwide account now you can amend the account to show your address in Spain at a later date and the bank cards and statments can be sent there.

I have my credit card set up to pay the balance off each month via the flex account, something which also would work if you're out of the country.  You can draw up to £300 a day from any Servired machine free of charge.

To work out if you would be better off in Spain you will have to calculate how much your pension is worth in euros and then work out what you would pay using the guide listed earlier by Bobaol.  Then compare it to what you will pay in UK only then can you choose which country to elect to pay tax in.

Great stuff, thank you.

It's becoming clearer now!

You're welcome - good luck with the research.

For anyone who does draw out money from a Nationwide account, I read that it you have a joint account then you can draw out £300 on each of your cards, haven't tried it my self but it could come in useful if you do as I do and load up the Spanish accountusing this method.

I think I might try doing this in January when we are both over together for a week