Rules on residency for tax purposes, any advice?

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This topic contains 4 replies, has 3 voices, and was last updated by Profile photo of Anonymous Anonymous 10 years, 1 month ago.

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  • #52397
    Profile photo of Anonymous
    Anonymous
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    I have retired early and will not receive any pension for the next 15yrs.
    My only income is from investments made in various bonds and funds based in the UK, which through some good advice over the years I can now receive a tax free amount each year to live on.

    We now find ourselves spending more and more time each year living in the property we own in Spain.
    I am aware of the 182/183 day rule that states if we spend more than this amount of time in Spain during one year, we will be classed as resident for tax purposes.

    My questions are as follows..
    Would my Uk based tax free income be liable to tax in Spain if we spent longer over there?
    How would anyone know how long we had spent in Spain during the year?, and how strict is this rule enforced ?

    What would the implications on my income be if we took out residency and lived permanently in Spain?

    regards jez

  • #67086
    Profile photo of Anonymous
    Anonymous
    Participant

    Would my Uk based tax free income be liable to tax in Spain if we spent longer over there?

    You would be taxed on all your income, wherever in the world it originates. In addition you would probably pay more tax in Spain than in the UK as the personal allowances are awful and you have to pay an annual wealth tax on ALL worldwide assets (if you are tax resident).

    If you get income from PEPS, ISAs you would be particularly hard hit as the income form these does not have to be declared in the UK. If you have dividends from UK companies and pay basic rate tax you pay no more tax if you are in the UK. In fact I don’t think you can hold PEPs and ISAs if your are tax resident in another country.

    How would anyone know how long we had spent in Spain during the year?, and how strict is this rule enforced ?

    It is highly unlikely they would ever find out. However, in the UK the authorities simply demand to see all ATM, cash withdrawal, credit card transactions, bank statements, heating, telephone and utility bills. This usually establishes where you have been – unless you deal solely in cash 😯

    What would the implications on my income be if we took out residency and lived permanently in Spain?

    I think that’s the same as being tax resident.

  • #67093
    Profile photo of Anonymous
    Anonymous
    Participant
  • #67094
    Profile photo of Anonymous
    Anonymous
    Participant

    The rates are as follows (on income)

    < 4000€ 15%

    4000€ – 13,800€ 24%

    13,800€ – 25,800€ 28%

    25,800€ – 45,000€ 37%

    > 45,000€ 45%

    Compared to UK tax rates starting at 10% and then 22% up to about €50,000 year you really do not want to be tax resident!!!!

    In addition you will pay wealth tax of 0.2% on all assets over €170,000

    PLUS Each year, the municipality issues a property tax payment slip for all properties. The tax is usually between .5% and 1.1% of the cadastral value (valor catastral) of your property, which is roughly 20 times lower than the market value.

    Think very carefully before spending more than 183 days in Spain. You are highly likely to be worse off (in post tax income).

  • #67101
    Profile photo of Anonymous
    Anonymous
    Participant

    Thanks for your replies. It would appear that keeping a Uk address for tax purposes, and not applying for residency in Spain will be the best option for now.

    ashtondav wrote:
    PLUS Each year, the municipality issues a property tax payment slip for all properties. The tax is usually between .5% and 1.1% of the cadastral value (valor catastral) of your property, which is roughly 20 times lower than the market value. quote]

    I’m sure we received one of these last year. I took it to the town hall thinking that I had to pay it, and was told that it was payable only if I sold the property 😕

    regards
    jez

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