Income tax on UK State pensions in Spain

This link is the actual approved text:-

http://www.hmrc.gov.uk/taxtreaties/signed/spain-uk-protocol.pdf

But no hint when it will be used. See Article 18 on page 15

This message was last edited by JohnKath on 15/12/2013..
This message was last edited by JohnKath on 15/12/2013.
This message was last edited by JohnKath on 15/12/2013.

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In fact ploughing through it ( it is raining here ) para 2. a) bottom of page 15:-

2.
a) Notwithstanding the provisions of paragraph 1, pensions and other similar
remuneration paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

Seems to me to suggest there is absolutely no change PENSIONS.....PAID BY.....A CONTRACTING STATE.....SHALL ONLY BE TAXABLE IN THAT STATE.

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Think you should have read a bit further John. This is from Article 22 Elimination of Double Taxation :

b) Where in accordance with any provision of the Convention income derived or capital owned by a resident of Spain is exempt from tax in Spain, Spain may nevertheless, in calculating the amount of tax on the remaining income (or capital) of such resident, take into account the exempted income or capital.

which as I read it, means they can do what I first described earlier

 

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Johnkath, I must say I tend agree with Kathyslad on this, albeit, that it will adversly affect me.

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Just to be clear, the change I have described appears in other DTA's that Spain have (e.g Germany ) and is not unique to the UK. In addition it's from the latest (2003) OECD DTA model.

With regard to the calculation, I created an Excel model based on an example in the Padre manual. I also put it through the 2012 Padre (the latest version) to check that it was correct. I then played around to find the values I posted, which are correct.

I can only repeat that they are not interested in the tax you have already paid, as they are not raxing you on the income you recieved which is exempt, but on the income which is taxable in Spain, but at the higest rate. In other, based on the assumption that if it was taxable in Spain, the marginal rate you would be taxed at. 

I am not aware of it appearing in the BOE, so is still not in force. Just for information, the amended DTA between Germany and Spain was signed on 3rd November 2011, was published in the BOE on 30th July 2012, and came into effect on 18th October 2012. So a delay seems pretty normal.

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OK I should have continued reading. I would not take issue with your interpretation of Article 22 so if it is brought in before July 2014 it looks like I will have to fess up. However in discussion with my adviser he was adamant that you do not add GP & SP together and enter the the total in one box but that the SP is entered as your income and the GP is entered elsewhere but is accounted for in the Padre calculation.

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As far as the Padre system is concerned, you do enter the GP as a separate figure which you have to do so it knows which amount is not taxed. However, for the purposes of " the calculation" it does before it spits the figure out, it adds them both together to arrive at your total income. I wasn't describing how to fill in the Padre. I was describing how the calculation was carried out. I had to work out how it did the calculation, in order to build a model.

This message was last edited by Kathyslad on 15/12/2013.

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You have my congratulations Kathyslad I have not met anyone who claims they understand Padre least of all me!

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Actually, for standard income ( pensions, savings etc) they're quite simple calculations, although they look very complicated in the forms it produces.

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Reading carefully Article 22:-

Article 22
ELIMINATION OF DOUBLE TAXATION
1. In Spain, double taxation shall be avoided following either the provisions of its internal legislation or the following provisions in accordance with the internal legislation of Spain:
a)
(i) (ii)
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:
as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in the United Kingdom;

It seems to me that you have to tell Spain how much tax you have already paid in UK so that a) (i) (ii) can be applied.

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That's absolutely correct, but it's nothing to do with what we have been discussing. It relates to income which MAY be taxed in the UK as well as Spain . For example rental income in Spain. Under the DTA, you will receive a credit in Spain for any tax paid in the Uk, upto the amount of tax payable in Spain. Another example which MAY be taxed in both countries are dividends.

Some income is taxable ONLY in the UK eg Government pensions, or ONLY in Spain eg state or private pensions. Under the current DTA, Government Pensions are not declared ( as advised to you by BF), it's the change which means they are taken into account as I have described. If income is taxable ONLY in Spain, then some people ( encouraged by gestors) declare the income and deduct the tax paid. This is not correct, as the clause you quote demonstrates, as you are only allowed credit for income which may be taxed in both countries. You are supposed to have the income paid gross in the UK and pay the full amount of tax in Spain.

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