Income tax implications on Non Lucrative Visa

I moved to Spain on an NLV in May 2021 and have just completed my first renewal.

I'm not a tax expert, so I can only speak from my understanding & personal experience. As this is an important issue, I would suggest that you seek professional advice.

An NLV only allows 'passive income' - pensions, share dividends, interest on investments, rental income from property rented out. Living on savings does not count as income.

You are correct in that you would become a Spanish resident for tax purposes and liable for tax on worldwide income. However, as there is a double taxation agreement between the UK & Spain, you would only be taxed once.

Effectively, you declare all income in Spain on an annual tax return, but also show any tax already paid in the UK and this is offset. In general, the income tax rates in Spain are similar to the UK, however, the personal allowance is significantly lower.

Hope this helps!

RichT, thanks for your response and advice. I will indeed seek professional support with this, however your reply has been helpful, so thanks again.

Hi, alcrocko, also to be kept in mind is possible Capital Gains Tax .

You would become a Fiscal Resident in Spain in the same calendar year you recieve Residency ,if you arrive in Spain before 1st July. If you arrive as a Resident after that date you become a Fiscal Resident as soon as you have been in Spain 183 days.

Legal advice is certainly advised.

Good luck  ! 

LeckyLes 

Engage a tax assessor or gestor. Better still, get tax advice (in Spain) before committing to your NLV, as the income tax-take can be significantly higher in Spain than in the UK).

If you hold legal Spanish Residency, all your worldwide income is taxed in Spain, and you can withdraw from the income tax system in your home country.

You become liable for income tax as follows:

If your Residency (the TIE after your NLV) is granted Jan-June in year X, you are tax-resident wef 1st Jan year X. 

If your Residency is granted July-Dec in year X, you are tax-resident wef 1st Jan year X+1.

Income tax is collected a year in arrears. You declare in June the year following your tax-Residency. You pay in two chunks ... July and November.

Once you have made the first payment, you can apply to the Spanish tax authorities for a certificate of tax compliance. You can then send this to your home country to start the process of withdrawing from income tax there.

You will pay tax in both countries for a period until HMRC "zero-rates" you, and returns your double payment. Beware ... the double taxation period can be long. My wife and I paid double tax for 2 years (the admin was Covid-delayed).

If you sell your UK home AFTER you gave gained legal Residency in Spain (your TIE) you can no longer argue that is it your primary residence; HMRC could demand CGT. If you sell it AFTER you become a Spanish tax-Resident, you will pay CGT in the UK and in Spain (the process works such that you pay the UK first, then this sum is deducted from the demand made by Spain, so in effect you pay the amount demanded by Spain, where the tax is higher).

Thanks for your thoughts LeckyLes, and CGT is a good point too.

Will60, thank you for this info. Very helpful and much appreciated.