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Have you relocated from the UK to Spain (or you are planning to do so)? If you are feeling confused about tax, you are not alone. Navigating tax planning as a British expat is challenging. Yet it can be done – especially with professional advice.
One concern of many expats is the possibility of getting taxed twice – e.g. on a salary or pension income. If you are concerned that both the UK and your new country of residence (Spain) will do this, then this guide is for you.
Below, our financial advisers explain how double taxation works in 2023. We focus specifically on UK expats in Spain due to our client base in Murcia, Alicante and other surrounding areas.
We hope this content is helpful. If you want to discuss your financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
+34 966 460 407
The UK Spanish Treaty – Double Taxation Agreement
In 2013, the governments of Spain and the UK renewed the double taxation treaty created in 1976. It entered into force on 12 June 2014 with the main purpose being to prevent anyone from paying tax twice on the same income.
For instance, suppose you are a British expat living in Spain with a UK-sourced income (e.g. a buy to let property). Due to both nations’ tax regimes, it is possible that you may be deemed to be resident in both countries at the same time. In which case, the double taxation treaty should spell out your tax obligations.
Another scenario might be that you legally reside in the UK, but you own a Spanish property that you let out when you are not there. Here, you will need to declare the property income to the Spanish tax authority (Hacienda).
The property income should also be declared in the UK – along with the tax paid to the Spanish government. The latter can then be offset against your tax bill in the UK.
Which taxes are covered by the treaty?
The UK-Spanish treaty is 24 pages long and covers a wide range of taxes. These include individual income tax, corporation tax, income tax for non-residents, capital gains tax (CGT) and local tax on income and capital.
Each of these taxes can be difficult for a British expat to figure out on their own. Also, the laws concerning each one may change. For clarity, compliance and peace of mind, consider seeking help from an expat financial adviser.
If you travel frequently between Spain and the UK, it can be particularly difficult to discern which country you are a resident of. From the perspective of Spain, you will likely be considered a tax resident if you spend more than 183 days a year in its territory and your economic activities are based there.
The UK will likely regard you as a tax resident if you spend at least 183 days in the UK. However, there are exceptions to the “midnight rule” (e.g. if you are in transit). The UK also imposes a series of “overseas tests” which can be difficult to figure out.
The double tax treaty and financial planning
The treaty naturally has key implications for your wealth and finances. You do not want to be taxed more than is necessary. Moreover, you do not inadvertently want to break any rules and end up with a costly fine.
Having a clear picture of the UK-Spanish tax landscape can also help you with your long-term planning. For instance, in 2023-24 the tax-free personal allowance for income is £12,570. In Spain, however, th basic personal allowance (for under-65s) is €5,550.
The income tax bands also differ between Spain and the UK. In the latter, the rates are 20% on income between £12,571 – £50,270, 40% on income between £50,271 – £125,140 and 45% on anything above this.
In Spain, the marginal rate varies between 19% – 45%. The highest rate applies once an individual’s income surpasses €60,000 (a much lower threshold than the UK’s 45% rate).
Knowing this kind of information might impact when, and how, someone might choose to relocate to Spain from the UK for work or retirement.
For instance, a UK resident earning £100,000 might choose to retire before moving to Spain, rather than moving there and working remotely for his UK employer. He might believe that this decision will keep his highest rate of income tax in the UK’s 40% higher rate, and out of the Spanish 45% rate.
Yet the double taxation treaty brings other information into the picture. For example, British expats can choose one of two options when they become resident in Spain. Either they can be taxed as Spanish residents (on the aforementioned PIT scale), or they can be taxed at flat rate of 24% on income sourced in Spain.
This might tip the expat’s decision in a different direction. For example, if he left his UK job paying £100,000 and relocated to Spain, taking up a local job paying €100,000, then he could end up paying a far lower rate of tax (24%) provided he meets the qualifying criteria.
Conclusion & invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
+34 966 460 407