July 2 2013

Occupational and State pensions are only taxable in Spain if you are resident there, and are taxed as ‘general’ income in Spain, and added to income such as rental income and other pensions taxable in the same way, as part of your worldwide income. A deduction of between €2,652 and €4,080 is available against such income (the higher the income, the lower the deduction, although it cannot be reduced below €2,652) in calculating the taxable income. This income is then taxed at the progressive scale rates from 24% to 43%. The UK State retirement pension is always paid gross in the UK, but for other pension income, HM Revenue & Customs (HMRC) will continue to deduct tax at source until they are satisfied that you are both resident in and paying tax on this income in Spain.

It used to be possible to receive your UK pension without deduction of tax in the UK using Form FD9. However, this Form is no longer accepted by the Spanish authorities and they will refuse to stamp any FD9s submitted to them. Nevertheless, it appears that certain tax offices in Spain, notably the Orihuela and Elche tax offices, were still accepting the FD9 up until recently.

Instead, Spanish residents paying tax in Spain can request a certificado de residencia fiscal NEN – España Convenio, from their local tax office in Spain. This certificate should then be sent to HMRC, along with details of the pension income from which UK tax is being deducted, at the Centre for Non-Residents, Fitz Roy House, PO Box 46, Nottingham, NG2 1BD, tel: +44 151 210 2222 (if calling from outside the UK) or 0845 070 0040 (if calling from the UK).

The tax year in Spain runs from 1st January to 31st December and the Spanish authorities will generally want the tax due on the UK pension to be paid for the first time in May/June of the year following the tax year of receipt before they will issue a certificado de residencia. You will ultimately be repaid any PAYE tax deducted at source in the UK by HMRC whilst you were actually resident in Spain. However, you should not then claim the UK tax paid on your Spanish tax return for the tax paid on the income in the UK. There will therefore be a period of some months between paying the tax in Spain and receiving the repayment from the UK authorities, and you should budget for this.

UK Pensions Shrink on Exchange Rate and Unnecessary Fees

Currency exchange rate changes can have an effect on your UK pension. Your UK pension is paid in Sterling and the amount of Euros it buys each month will vary. If the pound weakens then your spending power will be reduced. Many pensioners already living in Spain and claiming UK pensions are already suffering the effects of a weak pound.

The many pensioners who receive a pension already converted to Euros generally from the Post office already are paying away on average 6% on the exchange rate. So the weak pound and a loss of 3-6% is not a great start or situation to be in when the cost of living is increasing and the Euros in your wallet are diminishing. The exchange rate can be beneficial if you want to sell your property or assets in the Eurozone. The majority of people bought Euros above 1.5000 have seen a relative 23% increase of sterling value in just the exchange rate.

I understand the value of the asset has fallen in Euro value but on many occasions the seller is able to net off near to par. Rather than taking a big hit on exchange rate. What many expats do not realise if their dream of a Spanish home does falter and they want to return to the Uk is that the cost of living and property rental prices have generally increased. So it is very easy to jump out of the fire into the frying pan.

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About the Author

Roy has over 30 years Financial Service Business experience starting in retail banking to Institutional trading. He has traded every tradable product specialising in FX. Roy has many years Deliverable FX experience being involved with many of the industry leaders. He has written articles for many of the industry’s top publications. with articles in the National press along with appearing on CNBC and Bloomberg TV. Roy understands how FX can be a stressful process to both business and individual clients. MMFX is created to help with competitive pricing and delivering what the clients need. Their business understands that each transaction and each client have an individual need specific to them . They offer a hand holding jargon free service. There is no obligation or cost to use their services. They look forward to discussing your personal or business’s currency needs. www.moneymofx.com