Declaration for pensions

Dear Noelia
I read an article by an English solicitor recently regarding tax and residence in Spain which concerns me.
I have been resident in Spain with my wife since October 2001, receiving our residence cards in November 2002. We have a small income each, from UK pensions which amounts to about 15000 euros per year. This pays our bills and living expenses, anything else we pay from our savings in the UK.
I have been told by my Spanish lawyer each year that we do not have to make income tax declarations as our income together is under 22000 euros, so I have never made a return. According to the English solicitors article, unless one has made an income tax declaration in Spain for three successive years, one is not considered a tax resident, and will not be treated as such, for example when selling a property or dealing with inheritance etc.
 Could you please advise me who is correct in this matter, and what if anything I should do.
 Thank you

Dear Paul,
I have been lately receiving many enquiries similar to yours and it is therefore that I have decided to publish yours.  Before I go through it though, I would like to clarify that my previous article on Income and Wealth Tax was only referred to those readers owners of a property in Spain whose main residency is in the UK ( i.e non-residents), and therefore  those owners who have been residing in Spain on a long term basis (basically spending more than 183 days per year in sunny Spain) should not worry about filing this tax.
Replying to your question, you have been advised correctly by your Spanish solicitor.  By the Spanish Income Tax Act (IRPF) any resident in Spain who is not receiving an income of more than 22.000€ per year is not obliged to file an Income Tax return (which is your case), however this does not mean that a resident earning less than the quoted figure cannot file an Income Tax return in order to become a tax resident on the Tax Offices system or benefit from a tax rebate.
The most typical situation is of an employed person in Spain earning let's say 18.000€ per year. This person even though is not obliged to file a tax return would benefit from doing so as they would most certainly be entitled to a tax rebate if, for instance, they had a mortgage on their main residence.  On every pay slip the  IRPF tax would be withheld. This could represent between 2% up to 15% of the pay in most cases.  In this situation if this person had filed an Income Tax return they most likely would be entitled to be reimbursed this percentage which had been withheld on their pay throughout the year.
This is obviously not your case, but I still have clients who prefer to be taxed on their pensions in Spain as to avoid being withheld any amounts in the UK and to become registered as tax payers in Spain.  In your case I doubt you would have to pay anything to the tax offices if you were to file for Income Tax in Spain for both your pensions. However, bear in mind that you should be including on that return all your world wide income, and that is not just your pensions but any interests that you receive from bank accounts, deposits, etc (your total wealth).
Unfortunately it is not correct that in order to become a tax resident you need to file an income tax for three consecutive years in Spain. Any clients who files an income tax in Spain will be treated as tax residents in Spain and they will appear under the Tax Offices system as such.  For instance, if one of my clients ( in your situation) has decided to sell their property next year, in order to avoid having to be treated as non residents and therefore having 3% withheld out of the selling price, by filing a tax return the previous year they get automatically registered as a tax payer under the "Hacienda" system and therefore the following year when they sell the property I can obtain a tax residency certificate by lodging to the Hacienda website.
There is obviously another way of obtaining this tax certificate, and that is by applying for it at the main office of the Tax Offices.  For this you need to prove that you were not obliged to file an Income Tax in Spain (i.e, your earnings were less than 22.000€ per year, that your only pension is from rendering services to the UK government, etc) , but if you were already registered under their system the procedure is as simple as clicking on their website without having to prove anything.
You will find that regarding taxes in Spain there is a lot of information that seems to contravene each other, however each situation should be looked at separately and in detail before reaching any sudden conclusions.
Best regards,
Noelia Poveda


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