Need to Declare if State Pension Is Under Tax Threshold?

Question from one of our members on the facebook group, answered by Philip Carroll.

Member: By way of a postscript to the original post and my comment, MY tax accountant verified Philip’s info and then had it all translated for the benefit of English clients. Went in today and YES, I would have had to pay 467 euros as a result of declaring my teacher pension IF there was an obligation for me to declare. Fortunately, my taxable State Pension did not reach the limit. All done correctly; all Philip’s advice spot on, so a thank you to him.

Admin: Philip when you are around could you please clarify if a teachers pension needs to be declared. Thank you.

Member: The fact that it is a teachers pension is irrelevant. It is a government pension and was declared under the rules to my tax accountant, I even pointing out the change from January 2015 to make sure that all was above board. This was acknowledged and verified by the accountant who placed me in a category of being “under no obligation to declare” because my state pension did not attract tax.

Another member: Ok, so if someone’s only income is a uk government pension then they have absolutely no obligation to declare it until they receive other income/pension that would attract tax? What happens if you submit a joint tax declaration and your spouse has to pay a small amount of tax on pensions received? I suppose in that case the government pension would have to be declared and it might be best to revert to single declarations?

Philip: the tax program is designed to show you the best option every year. It’s a very simple process, and you can look every time you make an entry to see the impact. You are legally entitled to submit the best option for you.

Member: If my wife and I had declared jointly we would have had to pay 4760 euros in tax. My wife receives TWO pensions of modest value but because they exceed the 11000 threshold she is taxed (this year) nearly 1900 euros. I fully intend to pursue this matter to get a clear picture even if I end up being taxed myself. And I KNOW for certain that my tax accountant would want to do the right thing.

Philip: Just to clarify my understanding of your post. You have a government pension and a state pension, but the value of the state pension, on its own does not attract any tax, but when your government pension is added into the mix, then the tax payable (on the state pension) is €467. However, because your state pension is below the tax threshold you have been advised not to submit a return.

My view on this is that is incorrect. You are required to declare all your income, including the government pension. Last year the tax legislation with regard to the need to declare was amended to include

“Estarán obligados a declarar en todo caso los contribuyentes que tengan derecho a deducción por doble imposición internacional ”

The other point I would make is that establishing your fiscal residence (through tax returns) is becoming more important, particularly with regard to inheritance tax , capital gains etc.

More relevant mentions of this obligation to include government pension on your tax return, regardless of other income.

Philip Carroll in answer to a comment again expressing doubt about the validity of the advice given: Seems pretty clear in the Renta documentation.

La normativa fiscal contempla algunos supuestos excepcionales de rentas exentas que, no obstante, deben tenerse en cuenta a efectos de calcular el tipo de gravamen aplicable a las restantes rentas.
RENTAS PREVISTAS EN LOS CONVENIOS DE DOBLE IMPOSICIÓN En la mayoría de los Convenios para evitar la doble imposición suscritos por España se establece que, cuando las rentas obtenidas por un residente estén exentas conforme a las disposiciones del Convenio, estas rentas exentas se pueden, no obstante, tener en cuenta a efectos de calcular el impuesto sobre el resto de las rentas de dicho residente.CUMPLIMENTACIÓN:Estas rentas se incluirán en el apartado “M. Datos adicionales para el cálculo del Impuesto”, casillas 469 y 470 de la página 14 de la declaración, según hubieran correspondido integrarlas en la base imponible del ahorro o en la base imponible general de no haber estado exentas.

And even clearer in the Padre manual

“Contribuyentes que, con independencia de la cuantía y naturaleza o fuente de las rentas obtenidas, tuvieran derechoa aplicar el régimen transitorio de la deducción por inversión en vivienda, la deducción por doble imposición internacional,”

Please note: The information provided is based upon our understanding of current legislation. It is not legal advice but is provided freely to enable you to be properly informed. We recommend that if you are considering taking action, you should seek professional advice.