Double tax agreement in Spain
What is it and how does it work?
A double taxation arrangement (DTA) is a deal between two countries. It is not a European piece of legislation. Also after Brexit, the double taxation arrangement between Spain and the United Kingdom will remain in effect.
A double taxation arrangement prohibits us from paying taxes twice for the same benefit or profits. If tax is paid in another country, such as the United Kingdom, Spain, as the Controlling Tax Authority for Spanish citizens, would balance the tax paid in the United Kingdom against tax owed in Spain. This means we don't have to pay tax twice on the same purchase.
Country taxation.
As a Spanish tax citizen, you have the luxury of getting UK bank interest, pensions, and capital gains paid to you in their entirety. You only pay tax in Spain after that since no tax is deducted in the UK. However, you must first pay tax in the United Kingdom on rental income. Request a tax payment certificate from the UK HMRC and give it to your Spanish tax advisor. Your adviser will subtract the tax paid in the UK from the tax owed in Spain after the tax on your worldwide profits and savings has been determined in Spain.
Inheritance tax is not covered by the ‘Spain-UK DTA.' This is due to the fact that each nation taxes various legal entities. In Spain, the beneficiary is the one who is taxed. It is the one who has passed away in the United Kingdom. The same company has never paid tax twice. It is possible to request a tax offset from the appropriate authorities, but this is not compulsory and is not always granted. Making the petition would necessitate the assistance of a professional.
CRS - Tax evasion.
The Common Reporting Standard is a method for detecting tax evasion (CRS).
The Organization for Economic Cooperation and Development (OECD) is in charge of combating foreign tax evasion and money laundering. It has developed a software system that enables countries to automatically share information about properties, income, and gains made by people living in another country each year. Every year, the United Kingdom and Spain automatically exchange details. In total, 97 countries are now exchanging information automatically. Switzerland is not alone in exchanging information. In the next two years, another 23 countries are scheduled to enter the programme. If tax is not paid in Spain on money kept in another country, the system would almost certainly detect the underpayment.
| Summary of some of the differences in taxation between the UK and Spain | ||
|---|---|---|
| Tax | UK Resident | Spain Resident |
| Tax Year Dates | 6th April – 5th April | 1st January – 31st December |
| Income Tax Allowance | £12,500 (2020/2021) | 9,250€ up to age 64 10,400€ age 65+ 11,800€ age 75+ |
| Capital Gains Tax Allowance | £12,300 (2020/2021) | N/A but some gains can be offset against some losses |
| Savings Tax Rates (interest and capital gains) | N/A - Income Tax and CGT calculated separately | 19% to €6,000, then 21% for the next 44,000€ and 23% between 50,000€ and 200,000€. Above 200,000€ the rate of tax is 26% |
| Tax Free Interest | £1,000 for basic rate taxpayer. £500 as higher rate taxpayer | Nil |
| Tax Free Dividends | £2,000 | Nil |
| Annual ISA Allowance | £20,000 | Unlimited |
| Pension Contributions Limits | 100% of your earnings up to £40,000 (per annum) | 2,000€ pa Contributions to a company pension are possible to 10,000€ |
| Inheritance Tax | Above £325,000 at 40% plus possible allowance against the main residence of £175,000 in 2020/21 | Autonomous community rules. Catalonia and Madrid have large discounts for immediate family |
| Wealth Tax Limit | N/A at present | Autonomous community rules. Catalonia: over 500,000€ with a 300,000€ allowance for the main residence, rates from 0.21% to 2.75% |
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