Residency for tax purposes

Information and questions about the Law in Spain and Andalucia.
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Wicksey
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Residency for tax purposes

Postby Wicksey » Sun Dec 11, 2016 11:36 am

This item below was posted on a local newsletter. I have looked at the link but cannot interpret it - too technical for me :oops: . First I have heard of not having to declare our UK income here as it's derived solely from the UK.

I note that some people are still alluding to the 183 day rule to determine in which country you are deemed to be resident for tax purposes. However, since the implementation, (in 2014), of the Double Taxation Convention between the UK and Spain, the 183 day rule no longer applies. (It was virtually impossible to enforce anyway!). You can find the full convention document though the following link - https://www.gov.uk/government/uploads/s ... _force.pdf

In particular see paragraph 2, which defines the new rules for determining your resident status for tax liability. One of the main criteria is now, your “centre of vital interest”. i.e. the main source of your income. For example - Assuming you have a permanent property available to you in both the UK and Spain, and your source of income is UK pensions, you can be domicile in Spain for the full 365 days of the year, but still only be subject to UK taxes. (you will still, of course, be liable to IBI and the Non Resident tax in Spain). As this convention is between the UK and Spain, it should be unaffected by Brexit. Also, you may find the banks asking for proof of your source of income, i.e. a UK tax return.

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Re: Residency for tax purposes

Postby Lyric » Sun Dec 11, 2016 11:39 am

I think that is a misinterpretation but Sid will know.

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Re: Residency for tax purposes

Postby El Cid » Sun Dec 11, 2016 12:11 pm

Yes, it is completely wrong.

If you read the first paragraph of Article 4 it says :-

For the purposes of this Convention, the term “resident of a Contracting State”
means any person who, under the laws of that State, is liable to tax therein by reason
of his domicile, residence,
place of management, place of incorporation or any other
criterion of a similar nature,


The key words are highlighted. If you live in Spain then the laws of Spain apply, and those laws clearly state that if you spend more than 183 days in Spain, you pay tax in Spain. Nothing has changed in the new Tax Treaty to change that.

The purpose of the other paragraphs in Article 4 cover the situation where, under the residency rules of both Spain and the UK, you could be deemed tax resident in both countries. These paragraphs are what are often referred to as the "tie breaker" rules to decide in which country you are tax resident. Bearing in mind that if you spend 90 days in the UK or even less under certain circumstances, you can be deemed to be tax resident in the UK, so you can see that this situation could easily apply to a person who lives predominately in Span, but makes frequent visits to the UK.

No doubt the perpetrator of this nonsense will be taken to task by many other contributors in the next edition of the blog.

Sid

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Wicksey
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Re: Residency for tax purposes

Postby Wicksey » Sun Dec 11, 2016 12:25 pm

I didn't think it was correct. I use a gestoria to do our tax returns who is widely recommended and I'm sure she would have said something if we weren't due to do tax returns here. Unless you are something of an expert in the field, all the legislation can be hard to follow and interpret.

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Re: Residency for tax purposes

Postby El Cid » Sun Dec 11, 2016 1:10 pm

You're right. Even the people in the tax office don't know about the changes to the Tax Treaty with regard to government pensions!

Sid

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Re: Residency for tax purposes

Postby gerryh » Sun Dec 11, 2016 4:52 pm

I read the same article and it seemed to imply that I could pay all my income tax in the UK, which would be less than I pay here, but I would also have to pay non resident tax here.
Don't know how much that would be but I guess it might be more than the difference between UK and Spanish tax, besides for the hassle of doing two separate tax returns.
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Gerry
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Re: Residency for tax purposes

Postby El Cid » Sun Dec 11, 2016 5:26 pm

That's exactly what he was implying, but his interpretation was completely wrong. He obviously didn't understand the very first sentence.

Generally, we would be better off just paying UK tax as their allowances are better and the tax rates lower above €12K.

If he is right, every tax advisor, lawyer and financial gestor, not forgetting the thousands of tax officials in Hacienda, have got it wrong, and more to the point has been getting it wrong for years, as there are no significant changes regarding tax residency in the new treaty from the 40 year old one.

Sometimes I despair about the rubbish some people post on social media.

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IreneD
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Re: Residency for tax purposes

Postby IreneD » Sun Dec 11, 2016 6:20 pm

I also saw this on the newsletter, Wicksey - we must get the same one. Haven't seen it on social media yet, though. Thanks for asking Sid, I was going to ask him so you saved me a job. :)

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Re: Residency for tax purposes

Postby El Cid » Sun Dec 11, 2016 7:06 pm

It depends on what you consider to be social media.

This forum and the site where the information was posted would fall into the "social media" according to the Wikipaedia definition.

Social media are computer-mediated technologies that allow the creating and sharing of information, ideas, career interests and other forms of expression via virtual communities and networks.

Sid

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Re: Residency for tax purposes

Postby peteroldracer » Sun Dec 11, 2016 9:28 pm

The difference between this 'social media' and others is that over the past 12 years I have seen very very few examples of the common reaction of so many Brits "I don't know what I am talking about but that won't stop me saying something!"
The saddest people are those that cannot laugh at themselves

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Wicksey
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Re: Residency for tax purposes

Postby Wicksey » Mon Dec 12, 2016 12:04 pm

Someone has replied today in the same vein as you Sid, so that's hopefully set the record straight. I wonder how many people the OP had told that little tale to in the local bar! If I could choose to pay my tax in the UK I would as I don't pay any there but do here :(

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Re: Residency for tax purposes

Postby El Cid » Mon Dec 12, 2016 12:56 pm

Yes, that reply made the situation pretty clear. He also linked to this site which gives a good explanation of how the treaty works for people with dual tax residency

http://www.spanishpropertyinsight.com/tax-and-pensions/spanish-tax-residence/

Sid

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Re: Residency for tax purposes

Postby Wicksey » Mon Dec 12, 2016 3:38 pm

Yes that article sets it out quite clearly that the 183 day criteria still rules.

It would seem that the 'centre of vital interest' is more than just the source of your income as inferred by the OP of the article I included above. In the article's example someone still has their main home, family and business in the UK although spending much of her time in Spain. I can see how that makes her a UK resident rather than the fact that, like most people here, someone just gets their income from the UK.

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Re: Residency for tax purposes

Postby El Cid » Mon Dec 12, 2016 5:21 pm

Another aspect of "international" tax that many people do not realise is that income arising in one country is almost always taxed in that country, irrespective of your tax residency. So, if you have a pension coming from the UK it will be taxed in the UK. If you are a resident in Spain it will be liable for tax in Spain as it is part of your worldwide income.

The tax treaty is there to sort out that sort of problem. It says that a pension would only be taxed in the country of residence, so no UK tax would be due. Conversely, it excludes government pensions from that rule which are taxed in the UK and are treated as exempt income in Spain (exempt income is not taxed but taken into account in setting the tax rate you pay overall).

That's why UK rental income is taxed in the UK and also in Spain. The tax treaty does not make the same exemption for this, so you have to sort it out yourself by claiming back the UK tax on your Spanish tax return.

There is a hidden benefit in all this. If you end up being liable for tax in both countries, you do normally get a full set of personal allowances in both countries, so the tax you pay overall may be less than you would pay if it was only taxed in once country.

Sid


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