Double tax treaties are agreements made between two states to determine the rights of nationals living in the respective countries. For instance, a double tax treaty determines the taxation regime for people who have assets located in one country but are resident in the other. In the case of the UK-Spain double tax treaty, the agreement outlines the rights of UK nationals with assets or living in Spain and vice versa.
In the case of the UK and Spain, it is possible for people to be classified as legally resident in both countries due to each nation’s domestic tax regimes. To overcome this complication, the UK-Spain double tax treaty was drawn up. Here, we explain what you need to know about the agreement.
2013 UK-Spain double tax treaty
In 2013, the UK and Spain renewed their double taxation convention. First created in 1976, this agreement between the two nations stipulates how individuals should be taxed in the event of the two following scenarios:
- If the individual is classified as a tax resident in both countries under their domestic tax regime; or
- If they are living in one country but have income derived from assets in the other.
This is necessary because, in theory, you should not have to pay tax twice on the same income. Therefore, if you fall into either of the two categories stated here, you are able to offset one tax declaration through deductions and allowances to make sure you do not pay tax twice.
A closer look and an example
Generally speaking, you can only be tax resident in one country. However, it is certainly not outside the realm of possibility that you fulfil the domestic criteria set out by two different countries. In this scenario, your tax obligations will be defined by a double tax treaty. These will depend on where you have your permanent home, your centre of vital interests, or habitual abode. If this is unclear, it will come down to your nationality.
In both Spain and the UK, if you spend more than 183 days per year in that country, you are considered a resident. Remember, these days do not need to be consecutive. If you are resident in Spain, it is your responsibility to declare your global income to the Spanish tax authority, or Hacienda.
However, there are other possible scenarios. We will set out an example; let’s say you have a holiday apartment in Spain that you rent out while you are not there. In Spain, you are obliged to declare income on Spanish rentals to the tax authority, no matter where you are resident. But what if you reside in the UK?
This is where the tax treaty comes into play. As the property is situated in Spain you will be legally required to present a declaration to the Hacienda, however as a UK Resident you will also have to declare this income there, the tax you have already paid to the Spanish government will be offset against your bill in the United Kingdom.
Types of income affected by the double taxation convention
The UK-Spain double tax treaty is a 24-page document that specifies which types of income qualify for deductions or relief under the auspice of double tax. These include:
- Individual income tax.
- Corporation tax.
- Income tax for non-residents.
- Capital gains tax.
- Local tax on income and capital.
How the double taxation agreement affects you will depend on your individual circumstances. Moreover, tax rates and reliefs are subject to change. Therefore, we strongly advise seeking professional advice on how to make sure you are tax compliant in both the UK and Spain.
Experts in fiscal matters
Ábaco Advisers have been assisting our clients with fiscal matters in Spain since 1999. With a detailed, up-to-date knowledge of the taxation regime, we help you navigate your tax obligations in Spain based on your individual circumstances. For a free consultation, without obligation, complete this form. One of our team will be in touch at a time that is convenient for you.