Q. I read your article about changes in the treatment of Civil Service pensions for this year’s ‘Renta’ (Spanish income tax) exercise. I telephoned the tax office in Valencia and was told that, unless I now had Spanish nationality, the change would not apply. I read the official state bulletin which seems to confirm this but am still confused.
She also emailed me a copy of the BOE, the official state bulletin, M C (Costa Blanca)
A. First, there is no change in the declaration of UK Civil Service pensions for the Spanish tax declaration you make in May and June. This declaration is for the tax year 2014 and the new treaty did not go into effect until January 1, 2015, so the changes will apply to next year’s for 2015.
The main change is that all UK persons resident in Spain who receive UK Civil Service or other government pensions will from the next declaration have to declare the amount of these pensions on their Spanish income tax form. These government pensions are not OAP pensions. They include Civil Service and municipal jobs as well. Until this year, these pensions ‘did not exist’ for the Spanish tax agency.
The taxpayer will list his Civil Service pension along with any other income he has, such as his old-age pension, on his tax declaration. Because Spain has a sliding scale of percentages on income, this total then draws tax at 21 per cent, or 25 per cent or 31 per cent, depending on the amount.
The amount of the government pension is then deducted from the total income, but the remaining amount is taxed at the higher rate given by the sliding scale.So you are not taxed directly on the Civil Service income, but you wind up paying more anyway because of the higher percentage.