UK-Spain double taxation agreement
...and how it might affect you
As you will see, in this blog I’m taking a break from the cost of living in Spain to talk about a subject I promised to pursue in an article about Spanish residency a few weeks ago: the double taxation agreement between the UK and Spain.
In came up in the context of why, if you are a homeowner or have assets in Spain, being a resident is financially more beneficial than being a non-resident. I hinted that this was to do with the tax convention between the two countries and this is what I will discuss today (I apologise in advance for the technical jargon).
2013 Spain-UK Double Taxation Convention
This version of the tax treaty1 between the two nations – the latest in a series of modifications since its inception in 1976 – was drawn up to stipulate where an individual should be taxed on various “items of income, profit or gain”; especially in the event of said individual being a resident in both countries (rather oddly referred to as “Contracting States” in the convention itself) or being a resident in only one country but having income derived from assets in the other.
After all, the theory goes that a person should not have to pay twice on the same income. So, if you are in one of these two categories, the double taxation agreement allows you to offset one tax declaration against the other (through deductions and allowances); meaning you shouldn’t end up overpaying in your “Contracted State”.
I’m a resident in Spain and the UK
Where should I pay my taxes?
Firstly, it’s worth remembering at this stage that you automatically become a fiscal resident in Spain if you reside there for more than 183 days in any twelve-month period. That is to say, even if you haven’t gone to get your Spanish residency permit – something I’d advise doing with Brexit just around the corner – but live here for large parts of the year, you are obliged to do an annual tax declaration.
Our best advice is to comply with this, since the tax man does do periodic checks and you will end up getting fined for so-called "fiscal evasion".
If you are well aware of this legislation but own properties in both countries, you might also be vexed. For individuals who live and work the bulk of the year in one country and use their property in the other country as a second home or to gain rental income, it logically follows that taxes will be payable to the former country’s tax system.
If you’re a resident but don’t work in a “permanent establishment” in either country, do not work at all or cannot provide your means of subsistence – in official terms, your “centre of vital interests” cannot be ascertained – your tax is due in the country where you have your “habitual abode”. If this information is not given, or you don’t have a habitual abode in either state, you must contribute to the country of which you are a national (ie. the state you have a passport for).
Which taxes are included?
The 24-page double taxation agreement document specifies which of the taxes in both countries qualify for relief. In Spain, the following apply (with their equivalent terms in Spanish):
- Income tax on individuals (Impuesto sobre la renta or IRPF)
- Corporation tax (Impuesto sobre Sociedades)
- Income tax for non-residents (Impuesto sobre la renta de no residentes)
- Capital tax (Impuesto sobre el capital)
- Local taxes on income and capital (Impuesto sobre el patrimonio or impuesto sobre plusvalías)
In the UK, income tax, corporation tax and capital gains tax are taken into account.
Living in the UK and owning property in Spain
A practical example
Now that you’re clear on where you ought to pay tax and which ones are included for each country, I’ll give a practical example that may be relevant to several readers.
Let’s say you’re British and live and work in the UK. You travel to the Costa del Sol on holiday and realise that house prices in Spain are very reasonable compared to back home in Buckinghamshire (for instance).
You fall in love with a two-bedroom flat within walking distance of the beach in Mijas Costa that you know will earn you excellent year-round rental income – wait a second, this sounds exactly like VIVA's new promotion, Delta Mar Suites! – and you decide to make the purchase. Good good, I like the cut of your jib.
The conundrum
But you’re not a Spanish resident and will only visit for a couple of weeks a year, so as not to take time away from rental bookings. Do you declare the rental income to HMRC? And, even if you do, will Hacienda (the Spanish tax office) need to know about it? After all, I’m only allowed to get taxed once, right?
The answers to these dilemmas are as follows. In response to the first question, yes. You are a UK national, Britain is your centre of financial interest, your principal abode is there and – most importantly – you’re not even a Spanish resident.
In terms of Hacienda, this rental income falls under tax category 3 above, so you must do a declaration for impuestos sobre la renta de no residentes once per quarter every year. This falls under the remit of a tax regime and accompanying document called modelo 2102 and not doing this declaration is illegal.
Which brings me on to the answer to the last question. By paying what you owe in non-resident tax to the Spanish tax system, you qualify for relief to the tune of the same (or very similar) amount from HMRC. This application of the double taxation agreement ensures you only get taxed once on your income, albeit via a retrospective deduction of your tax contributions paid in Spain.
Which other countries does Spain have a double taxation agreement with?
Fortunately, Spain has signed similar treaties with almost 90 other countries worldwide, meaning that you are more than likely entitled to tax breaks in your own country for a property or income derived from assets on Spanish soil.
For the full list of countries3, follow the link below.
I hope this post has been useful for those who are seriously considering buying a property in Spain. I will touch on UK pensions in more detail in another post, as this will be of interest to many readers, too. If you have any questions or comments, feel free to leave me a message below!
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The opinions and comments expressed by contributors to this Blog are theirs alone and do not necessarily reflect the views of VIVA Homes Under the Sun Ltd, any of its associated companies, or employees; nor is VIVA to be held responsible or accountable for the accuracy of any of the information supplied.
Tony DeanJanuary 2, 2022 at 4:24 pm
I am about to start taking a small income from my private pension. I have the double taxation form that has to be signed in Spain. Can my accountant sign it or can they take it to the Hacienda on my behalf? I have lived in Spain for 16 years and have paid tax each year on my government pension. I receive the pension gross.
Mike AdamsJune 17, 2021 at 10:59 pm
Hi, Due to Brexit seriously considering Spanish residency. I own several properties in the Uk, which I rent to provide an income. Ive had conflicting advice about exactly where I would be liable for income tax through self assessment if i did become a Spanish resident?
VIVA TeamJune 18, 2021 at 3:28 pm
MassimoApril 8, 2021 at 6:00 pm
I am British and I have been living in Spain since 2017. I own a property in the UK which I have been renting out. I have been submitting the tax return in the UK and thanks to the tax allowance + deductable expenses my tax bill has always been almost nil. When I do the tax return in Spain should I report my British rental income? And if so shall I be taxed and if so how? If I sell the property shall I pay the capital gain tax in both countries ? Thanks Massimo
FrancesMarch 30, 2021 at 8:06 pm
Desperately trying to submit a form 210 to reclaim Spanish witholding tax on IAG dividend payments ...however no matter how correct the information entered Agencia Tributaria rejects it with different error messages every time so we cant produce the PDF ....AT has now rejected a MAP complaint despite it being clearly explained that the 210 form is rejected by them ...its been checked by a Spanish tax agent as correct so what do we do now
Ian HollandMarch 19, 2021 at 11:30 am
Further to my previous message of 19.12.2019 : No response to the appeal, by the accountant I engaged - good appeal, with Spanish translated info from HMRC and the Public Service Pension Scheme administrator. Nor was there any response to another appeal by HMRC working on this problem based in Liverpool. The plain fact is that for 2014, AEAT gained access to HMRC records within the 2019 Renta, for the fiscal year of 2018. (the 4 year catch up exercise) I have learned that HMRC records will show income, maybe a pension, but omits to identify pensions specifically NOT declarable for Spanish tax returns prior to January 2015. In other words, the impression gained is that Public Service Pension income is not highlighted in HMRC records - a major error in this situation. Unjustly costly for the pensioner living in Spain penalised for no legal reason whatsoever.It is a mess - many pensioners are trapped in this unjust situation. Even told to reclaim the UK tax paid from HMRC! Good luck with that ! As for the inception of the DTT of 2013 - one needs to be very very careful in completing the form. Yes - you can see CIVIL SERVICE on the form, but many are not receiving an actual UK civil service pension. One needs to make sure their agent raises box 470 onto the form from the database as 'renta extentas excepto para determina el tipo de gravimen'. Make sure the agent has done this before signing the tax return !! Hugely important. Also, check the spanish language version of Article 18 against the english language version. This problem has its' roots in the language, translation and interpretation of all UK public service pensions. For those married, especially if both have a public service pension - complete individual returns, not a joint return as the allowances are critical. They do NOT double on a joint return. The application of the DTT 2013 is unreliable, left in the hands of many local Haciendas, in especially Cataluna, Valencia, Murcia and Andalucia. Nobody seems interested, HMRC, British Embassy, Cabinet Office, and, it also seems that some assessors are not entirely familiar with this DTT. Of course one driver for AEAT is the need to maximise revenue, and UK public service pensioners are easy targets.
Phillip EverettJune 16, 2020 at 2:43 pm
We are thinking of of taking up Spanish Residency where we have a property with the intention of staying more than 183 days a year,. We have a property in the UK which we do not intend To rent out by maintain foe when we visit the UK. We also have a 2nd property in the UK we do rent out. What would be the tax implication?
lukeSeptember 23, 2020 at 4:26 pm
VIVA TeamSeptember 24, 2020 at 10:02 am
PaulaMay 29, 2020 at 1:16 pm
I have my nie number ... I have my residence card I have property in in spain for the last 4 years and now I am in uk to work 2or 3 weeks then 4 weeks back in spain then uk 2 or 3 weeks then spain ,,etc ,. Will I be able to carry on with this after brexit .. just done a yearly tax thing in spain . As I only got my green card last November I'm so worried I can't carry on earning in uk after brexit
Ian MulhollandDecember 15, 2019 at 10:48 pm
Resident in Spain since 2006, always completed Renta annually. In receipt of only income - UK DWP pension, and UK Government pension. Aware of DTT of 2013, made extensive enquiries in 2015 to work out date for declaration of the Government pension. Could not find out if it is regarded as a witholding tax declarable from 12.6.14, or tax on income declarable from 1.1.15. I have declared each year starting 2015. Just found out have been charged with fiscal evasion, taxed, fined and interest added, for 2014. Amount taken from bank is 2190 euros.. Looks like I have been double taxed. AEAT will not accept P60s, nor a letter from my local authority pension manager. HMRC particularly unhelpful. AEAT (Huercal Overa office) has said I must re-claim from my pension provider, - impossible on a government pension taxable only in UK. Nobody seems to know which date to declare from, nor even what difference is between withholding tax and tax on (my kind of) income. Cannot even find anyone else faced with this problem and my accountant at Villalba of Albox, seems to be having difficulty progressing this appeal. Even the preamble to the DTT by HMRC is not clear on the difference between the 2 types of taxable income.
AndrewJuly 21, 2020 at 11:48 pm
MaryNovember 6, 2020 at 12:01 pm
Chris BellOctober 22, 2019 at 12:58 pm
Having read that HMRC refund the non resident tax on a holiday home in La Cala but do not pay income tax in UK ,would I still be able to reclaim from HMRC ?
SimonOctober 22, 2019 at 2:22 pm
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