New UK-Spain double taxation agreement

1. New UK-Spain double taxation agreement to come into force on 12^th July 2014. Check out what it means for you on the HMRC website.

This is the section which applies to Governement Employees Pensions

http://www.hmrc.gov.uk/taxtreaties/in-force/spain-dtc.pdf

Article 18

GOVERNMENT SERVICE

1.

a) Salaries, wages and other similar remuneration paid 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.

b) However, such salaries, wages and other similar remuneration shall be taxable

only in the other Contracting State if the services are rendered in that State and

the individual is a resident of that State who:

1. is a national of that State; or

(ii) did not become a resident of that State solely for the purpose of

rendering the services.

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.

b) However, such pensions and other similar remuneration shall be taxable only in

the other Contracting State if the individual is a resident of, and a national of, that

State.

3. The provisions of Articles 14, 15, 16 and 17 shall apply to salaries, wages,

pensions, and other similar remuneration in respect of services rendered in connection

with a business carried on by a Contracting State or a political subdivision or a local

authority thereof.

b) However, such pensions and other similar remuneration shall be taxable only in

the other Contracting State if the individual is a resident of, and a national of, that

State.

This clause seems to suggest UK government pensions will in future be taxed in Spain if the holder is a resident of that country or a national. (the other contracting state being Spain in terms of this legislation)

Is that what it means? I've read it half a dozen times and I'm not sure if the little grey cells are dying off at an alarming rate (ergo - I'm thick) or if it's deliberately worded to make me feel like that.

The bit about "if the services are rendered in that state" seems to mean not taxable in Spain unless it's a Spanish government pension. Then the waters are muddied by the bit micky quotes.

Ho, hum. Pass the bottle, nurse, this one's empty.

No. The salient point is that in order to be taxable in Spain on a UK Civil Service or similar pension that person needs to be both resident AND a national of Spain.

Yes that's right, I missed the 'AND'. Grateful thanks.

Having had time to read it more carefully, I do not see where it changes anything with regard to Government Employee Pensions (Civil Service, military,  etc). 

We have read in several posts over the past few months,  that as from 'sometime in the future'  such UK pensions will be used to assess 'marginal rates' of tax in Spain.

I cannot see anything apropro this in the legislation. Have I missed it,  is there other legislation which covers it, or was it a case of mis-information all along ?

Thanks guys.

Article 22. DTA comes into effect on 12th June and applies to taxes withheld from that date, and other taxes from the 1st January 2015, so applies as I have previously posted to returns due June 2016.

Thanks Kathyslad,     Do you still see as in you posted last year  ?

Having read through the new draft Double Taxation Agreement between Spain and the UK, there is, in my view, a major issue, if you have a government pension, which is currently taxable only in the UK. If you have any other income, such as a state pension, then you currently get the benefit of two personal allowances.

A government pension is still only taxable in the UK, BUT, in Article 22, under Elimination of Double Taxation it says

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.

My understanding of this, is that they will add the value of a government pension to the income to be taxed in Spain, which will potentially impact your earned income allowances, and may also impact your marginal rate of tax.

Yes I'm afraid that what it means. I ran it through the Padre, and it doesn't impact your earned income allowances I originally thought ( which I find strange, but hey that's a little benefit). However, they do use it to work out your marginal rate, as I think I described earlier, which they then apply to the income which is taxable in Spain.

Thanks KL

I can't complain.  I had many years of enjoying the situation as it was, and, as they say, you only pay tax if you have the income !

Not long ago in UK there used to be a tax category called 'fiscal nomad’. If you did not own any property in your name in any country and you did not spend more than 13 weeks in any tax year in any country you were exempt from all forms of income tax.

Now they criteria are “centre of principal interest”. However if you have no such centre of principal interest, live on a boat and can prove you don't spend more than 3 months in any country what then?

Micky:    However if you have no such centre of principal interest, live on a boat and can prove you don't spend more than 3 months in any country what then?

No problem, as the new Legislation says:-  

( http://www.hmrc.gov.uk/taxtreaties/in-force/spain-dtc.pdf )

2. Where by reason of the provisions of paragraph 1 an individual is a resident of

both Contracting States, then his status shall be determined as follows:

a) he shall be deemed to be a resident only of the State in which he has a

permanent home available to him; if he has a permanent home available

to him in both States, he shall be deemed to be a resident only of the

State with which his personal and economic relations are closer (centre

of vital interests);

b)   if the State in which he has his centre of vital interests cannot be

determined, or if he does not have a permanent home available to him

in either State, he shall be deemed to be a resident only of the State in

which he has an habitual abode;

c) if he has an habitual abode in both States or in neither of them, he shall

be deemed to be a resident only of the State of which he is a national;

d) if he is a national of both States or of neither of them, the competent

authorities of the Contracting States shall settle the question by mutual

agreement

Thanks John helpful post. They seem to have backed it every which way. At the end of the day it's a tax on nationality.