Income tax

Dear Sir,

We are Spanish residents living wholly in Valencia and we are registered with the Spanish Tax authority for tax purposes.

Our local authority and tax pensions are taxed in the UK under the double taxation agreement, we have one property in which we live here in Spain and our other assets produce a small annual income, the size of which is insufficient for paying tax.

Following advice in this periodical, we filed a tax return in 2012 and received a reply which stated that we do not have to submit another return or if our financial circumstances change; since that date, they have not.

However, we have heard or read that it is wise to submit a tax return every five years, even though it will be a nil return and our financial circumstances have not changed. Could you please advise us?

Answer

If your income is under the minimum tax free allowance, you than do not have to file an income tax form.

However, if you need to justify at some point that you are a tax resident in Spain, you will need to apply to the tax office for a certificate to this effect. If you havent´ filed an income tax form, the tax office will not be able to ascertain and certify that you are a tax resident in Spain.

It is possible that even though your income is under the tax free allowance and you file an income tax form, you may have to pay tax.

The main reason you may require the certification of tax residency, is in the event that you are going to sell your Spanish property. If you can’t provide this tax residency certificate at the Notary's office on completion of the sale, the Notary is obliged to include in the deeds that the buyer is obliged to retain 3% of the sale price and pay this amount to the tax office. This 3% is a payment on account of any Capital Gains Tax.

The reason for this is because the Notary does not know if you a resident for tax purposes or not, and the only way to prove that you have been living in Spain as a resident is the certification from the tax office.

As a resident in Spain, you might also need this tax residency certificate to apply for a refund from the UK tax office, since as a resident in Spain, this is the country where you should be paying tax. Depending on the source of your income, you might be entitled to a refund from the UK.

This is something that you may well wish to take advice about from a UK tax specialist.