pension from spain

[kloofnek]

My Spanish husband has a Spanish pension which is put into our Natwest account monthly. We now have been notified that he will have to pay tax on it here in the UK. He holds a bank account in Spain and my reasoning is that if he had had it paid into that account instead of having it sent to the UK,he would have been able to avoid tax. He says he`d have to be resident there before it could be paid into the his account in Spain. I cannot see this being the case as when we lived in Spain ,we still held an account here at the Natwest. Anyone out there know anything about this kind of situation?

[kags]

from the limited information you have given it would seem that for tax purposes, your husband is non-domiciled in the UK - this would mean that he is taxed on what is called a remittance basis - that is, only on income brought into the UK. It would therefore seem to be correct that he is being taxed on the pension in the UK.
If you have a property in Spain, it should be easy to open a bank account there, and I believe (although I have no personal experience of this) that you can open a non-resident account subject to regular identity checks. Obviously you would have to spend the pension money abroad though!

[kloofnek]

Thanks Kags
He have been living in UK for 18 years and then six years previously.He are not domiciled in Spain anymore but has retained his nationality.
But as I have said,he still holds a bank account over in Spain.He works here and pays tax on his earnings and UK pension.

He goes over to Spain every year to see our eldest daughter and his family so to access the money would not be a problem.

[buildersmate]

There are double taxation agreements in place between the UK and many countries. I don't claim to understand the full implications, but I thought it means that tax might still be payable in the country of residence on income from another country of non-residence. There are various steps from the HMRC manual here that you can follow.
Perhaps someone like Skyline or Factor30 can advise
http://www.hmrc.gov.uk/manuals/intmanual/INTM1 54010.htm

[Skyline D]

Not really my ballpark, foreign income tax to be honest.

I suspect that if he's taxed in the UK on a remittance basis it would make no odds what bank it's actually paid into. Unless having paid the money into the Spanish bank he'd be leaving it there then, when he transfers it to the UK, it would be taxable anyway.

Double taxation treaties are supposed to prevent the same individual being taxed twice on the same income. They don't directly cause you to be taxed in the UK on income earned and left elsewhere so far as I know but like I said, I really don't know much about this area so I wouldn't presume what I say is gospel.

[kloofnek]

Thanks.We know about the Double Taxation Agreement.However.Spain will not be taxing him so it has to be in UK.But we thought that if it went into his Spanish Bank could avoid taxation which is totally UNFAIR when one has worked all their life,paid their dues,only to have to pay yet AGAIN!!!!!!!

In Spain ,tax rate is 8%...here in the UK,DAYLIGHT robbery at 20%.

[Skyline D]

Have to say I don't particularly see why taxation of pensions is "unfair"? It's not the first time someone has claimed that on here and won't be the last. Me, I don't see what odds the source of the cash is and I don't see why age should be an excuse to stop paying tax if you are earning enough to do so.

If the tax rate in Spain is so advantageous then of course there's a perfectly good option to live there and not the UK and thereby take advantage of it.

None of which though was the point of the question so I'll leave it at that.

[kags]

domicile for tax purposes has a different meaning to that in general use - it is basically a person's country of birth, and it is difficult to change. Given that, the treatment sounds correct, and if the money stays in Spain it will only be taxed at the local rate there. If it does come to the UK, it will effectively be charged on the difference between any tax charged in Spain and the UK rate.

[sqad617]

If your husband spends more than 90 days in the UK then he is liable for UK tax on all his earnings wherever they are in the world. If he paid his Spanish Pension into his Spanish Bank then he would have to pay UK tax on it.

Double Taxation does not mean that you can choice the country with the most advantageous tax..

[kags]

sqad617 - this does not apply if the taxpayer is NON-DOMICILED in the UK - non-domicled tax-payers pay UK on a remittance basis. What you are describing (incorrectly in actually fact, as it is 90 days on average over 4 years or 183 days in aby one tax year), is the basis of RESIDENCY for tax purposes - a different concept There is no dispute that this taxpayer is resident here for tax purposes.

[kloofnek]

Do not think we mind paying tax ,if one is working and earning a taxable amount.,fair enough.
BUT...one has already PAID on one`s pension,so to speak..so that is the quibble.

However,thank you all for your imput...makes for a good debate.

[Skyline D]

Er well, no you haven't. Not in this country anyway, I wouldn't know about Spain. In this country pension contributions are tax free, hence why so many people see them a tax efficient way of saving for retirement. So, no, you haven't already paid tax on this money.

Like I said before, I don't see why for the sake of argument a 64 year old who earns �200 per week should have to pay tax on it but a 65 year old who gets a pension of �200 per week shouldn't. Conceptually I just don't get it. Why should an arbitrary age sudenly bestow a tax free status?

[kloofnek]

Like I said,good for debate.
You say tax is not paid on pension contributions.I am talking about State Pensions,here,not private ones.
So ,one pays there tax on income(salary+National Ins.)
and one`s state pension is based on how may years you have worked as you get according years.
My husband does not get a full UK pension as one needs 44 years to get the full UK State Pension which does not amount to much.
Am I correct in thinking that National Ins.Contributions have nothing to do with the State Pension...or have I got that wrong.If I am right,one gets taxed before contributions deducted so DO pay tax on them.It seems that way looking at salary slips.
This is all very interesting and would like to get it right for any future dusputes.

By the way..what is your occupation as you appear to be very knowledgeable.

[Skyline D]

I think in theory national insurance was meant to pay for state pensions when it was introduced. I seem to recall reading that it doesn't cover it now but someone with greater knowledge than I on that front could maybe confirm.

Yes, Employee's National Insurance is a separate unrelated calculation to income tax so the income from which it comes is effectively taxed. Of course, National Insurance is not limited to Employee's and the Employer's element of it (which is bigger) has certainly not been taxed.

Notwithstanding whether it is or isn't a fund derived from taxed money, it still becomes income to the taxpayer and I still don't see why an arbitrary age should bestow a tax free status if it's large enough to otherwise be taxable? People are also taxed on interest earned on savings that come about from income that was taxed at source when they received it. What's the difference between that and a pension if it relates to whether or not the funds were once taxed?

Even if the answer to that is nothing, and therefore by logical extension, that savings interest shouldn't be taxed either, then it would just mean higher income tax would be needed to meet the state tax burden.

I'm a chartered accountant incidentally, though an auditor more than a taxation expert. Most of my tax experience is in corporate tax or payroll stuff.