How to declare UK income as a Spanish resident

Relocating to Spain, particularly to the Valencian Community, offers an appealing prospect for many UK individuals, entrepreneurs, and investors seeking a new lifestyle or strategic business opportunities.

However, the transition involves navigating a new tax landscape, with one of the most critical aspects being how to declare UK income tax Spanish resident.

Legal and regulatory framework in Spain

Becoming a tax resident in Spain triggers significant changes in your tax obligations.

The fundamental principle is enshrined in Spanish tax law, primarily the Personal Income Tax Law (IRPF), which dictates that residents are taxed on their worldwide income.

The Spanish Tax Agency (AEAT) is the primary authority responsible for the administration and collection of taxes in Spain.

Defining Spanish tax residency

You are generally considered a Spanish tax resident if you meet any of the following criteria:

• You spend more than 183 days in Spain during a calendar year. Temporary absences are not counted unless you can prove tax residency in another country.
• Your “centre of vital interests” is in Spain. This means your primary economic activities or interests are located here, or your spouse and/or dependent children habitually reside in Spain.

Once deemed a tax resident, your worldwide income becomes subject to Spanish taxation, regardless of where it was generated or where the assets are located.

The role of the double tax treaty between Spain and the UK

To prevent individuals from being taxed twice on the same income in both the UK and Spain, a Double Tax Treaty (DTT) exists between the two countries.

This treaty, published in the Official State Gazette (BOE), outlines which country has the right to tax specific types of income and how double taxation is relieved.

The DTT is crucial when you declare UK income tax as a Spanish resident, as it provides a legal framework for allocating taxing rights and applying tax credits.

Post-Brexit, the DTT continues to be fully effective, providing stability and clarity for UK nationals residing in Spain.

How to declare UK income tax as a Spanish resident in practice

When you become a Spanish tax resident, the way your UK income is treated fundamentally changes.

Spain will generally tax your worldwide income, but the Double Tax Treaty between Spain and the UK ensures that you are not taxed twice on the same income.

Instead, Spain provides a tax credit for taxes paid in the UK, up to the amount of Spanish tax that would have been due on that income.

Declaring UK pension income

UK pension income is a common concern for many expatriates.

The treatment depends on the type of pension:

• Government Service Pensions: Pensions paid by the UK government (e.g., for civil servants, local government, armed forces, police, firefighters) are generally taxable only in the UK under the DTT. You would not declare UK income tax as a Spanish resident for these specific pension types, though they might be considered for calculating your overall Spanish tax rate (exemption with progression). This means that while not directly taxed in Spain, they can influence the tax rate applied to your other Spanish-taxable income.
• Private Pensions (Occupational and Personal): These pensions, including State Pensions, are generally taxable only in Spain if you are a Spanish resident. This means you would declare the full gross amount of your private UK pension income on your Spanish tax return (Modelo 100). Any tax deducted at source in the UK can usually be reclaimed from HM Revenue & Customs (HMRC) by submitting a form or applying for a Non-Residency Declaration to prevent future deductions.

Rental income from UK property

If you own property in the UK and receive rental income, this income is taxable in both the UK and Spain under the DTT.

The UK retains the primary right to tax this income because the property is located there.

You will file a UK non-resident landlord tax return.

Subsequently, when you declare UK income tax as a Spanish resident, you must include this UK rental income on your Spanish tax return.

Spain will then provide a tax credit for the tax already paid in the UK, preventing double taxation.

UK investment income (Dividends, interest, capital gains)

• Dividends: UK dividends are generally taxable in Spain if you are a Spanish resident. The UK can also levy a withholding tax, typically at 15%. Spain will then give a credit for this UK tax when you declare UK income tax as a Spanish resident. This ensures that the total tax paid does not exceed the higher of the two countries’ rates.
• Interest: Interest income from UK bank accounts or investments is generally taxable only in Spain if you are a Spanish resident. You should arrange for UK banks to pay interest gross (without UK tax deduction) by notifying them of your Spanish tax residency. If tax is withheld, you would declare the gross amount in Spain and claim a credit for the UK tax paid.
• Capital Gains: Gains from the sale of UK assets (e.g., shares, property not covered by principal private residence relief) are generally taxable in Spain if you are a Spanish resident. The UK may also levy Capital Gains Tax on certain assets, such as UK residential property. Again, the DTT provides for a credit in Spain for any UK tax paid on these gains.

Foreign and UK-specific considerations

The UK’s departure from the European Union has introduced new layers of complexity for UK nationals residing in Spain.

While the Double Tax Treaty Spain–UK remains in force, certain administrative and legal aspects have changed, impacting how individuals manage their affairs and how they declare UK income tax as a Spanish resident.

Post-Brexit implications for UK Citizens in Spain