Understanding where you are a tax resident is important since the country of residence would tax you on your worldwide income and gains. In Spain you are considered a tax resident if you spend 183 days in Spain during the Spanish Tax Year – the Calendar year, or if your main professional activity is based in Spain. You can also be considered a Spanish resident if your spouse and/or dependent children live in Spain.
In 2013, the UK introduced the Statutory Residency Test, which whilst complicated, provides more certainty. From now on there are three tests taken in sequence:
- The automatic overseas test.
- The automatic residence test.
- The sufficient ties test.
The first test is absolute and negates all other tests, which means that you are a non-UK resident under this test, the other tests do not apply. If the second test applies then the third is ignored.
Are you paying Tax in the right Country:
Many people move to Spain and continue paying tax in the UK when they should be paying it here! Some people simply do not declare themselves to the Spanish Authorities at all assuming that they should just continue paying in the UK, particularly if they have only one source of income – usually their UK pensions and savings. If you are traced by the Spanish authorities and you have not submitted appropriate Spanish tax returns or have (in good faith) under-declared your income because you are paying tax in the UK, this will be treated very seriously possibly as tax evasion, regardless of how innocently arrived at. Declaring that you have paid tax in the UK on income which is actually taxable in Spain will not be considered a defence in Spanish Law.
While you may have been working in the UK for a UK employer or working as self- employed, you may still have a tax liability in Spain and you may have been paying social security in the wrong country. This could affect your healthcare, state retirement pension and other social welfare benefits.
Double Taxation Agreement
The treaty between Spain and the UK means that the same income or gain is not taxed twice, but not all income or gains is taxed in both countries, which means that you could end up paying more tax than you need to. Where income or gains is taxed in both countries, although you can offset the tax due in Spain, if the tax due in the UK is higher you will not get a refund
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