If you spend more than 183 days in Spain in a calendar year, you are considered a fiscal resident and are required to pay taxes on your worldwide income. This includes income generated in Spain, as well as income generated in other countries. It is important to note that the 183 days do not need to be consecutive, but rather a total of days spent in Spain throughout the year.
If you are not in Spain for more than 183 days, but have a permanent home or family ties in the country, you may still be considered a fiscal resident. In this case, you may need to provide evidence that you are a tax resident in another country and pay taxes there.
It is important to keep accurate records of your time spent in Spain and your sources of income, as failure to comply with Spanish tax laws can result in penalties and legal consequences.
When you receive any kind of income, such as a personal or company pension, interest on savings accounts or ISAs, investment income, or rental income, you must declare it in the country where you are considered a resident for tax purposes. If you are a tax resident in Spain and receive income from the UK, you must declare it to the Spanish tax authorities. Even if the income has already been taxed in the UK, it should still be reported on your Spanish tax return as gross income. You can then claim a deduction for the tax already paid in the UK in the appropriate section of your Spanish tax return. This is known as a deduction for “doble imposicion” in Spain. However, the deduction cannot exceed the amount of tax due on the income in Spain.
If you live in Spain and receive a state pension from the UK, you must report it to the Spanish tax authorities. You won’t receive a deduction for tax paid in the UK because the pension is received gross of tax.
There is one exception to this rule, which applies to government pensions. According to the treaty, pensions paid to civil service employees should be taxed in their home country regardless of where the individual lives. Before 2014, civil service pensions didn’t have to be reported if the recipient was a tax resident in another country. Therefore, civil service pensions weren’t required to be included in a Spanish tax return.
However, an update to the double tax agreement between Spain and the UK came into effect on 1 January 2015, which changed this rule. One of the changes was aimed at closing the loophole whereby a resident in Spain receiving a UK government pension could benefit from personal allowances in both countries.
Civil service pensions (except for NHS pensions) are always taxed at source in the UK because they are funded by UK taxpayers. If they were paid gross and taxed in Spain, it would mean that the UK public is effectively subsidizing the Spanish Government’s collection of taxes. Therefore, although not taxed, a civil service pension must now be included as income when calculating the rate of tax payable in Spain on other income. This means that when calculating the tax due, it may have the effect of pushing any other income into a higher rate tax bracket.