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bigduckontax, Accountant
Category: Tax
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I live in Spain, receive a state pension and a Police Pension,

Customer Question

I live in Spain, receive a state pension and a Police Pension, my income does not change other than in yearly increments ( sometimes)
This year I hit a demand to any more tax and I cannot understand why
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
It is normal practice for such pensions to be paid and taxed in the country of origin. As you live in Spain you will also be liable to Spanish Income Tax on these, but the Double Taxation Convention between the UK and Spain precludes the same income stream being taxed in both jurisdictions. This is achieved by tax credits, the tax paid in one country being allowed as a tax credit in the other. The Convention does not, however, protect you from differences in rates of taxation.
As you are probably aware your State Pension (SP) is taxable, but paid gross. The normal procedure would be for your tax code number applied to your police pension to be reduced to collect the tax due on your SP thus making you tax neutral at the year end. Using this system there are often small over and underpayments of tax due. These are collected in a later years tax code usually the year after. An underpayment in 15/16 would not be recovered until the 17/18 tax year.
Now if this has not happened then that could explain a demand for unpaid tax. The first thing to do is check it to make sure that HMRC's figures are correct. HMRC send out literally thousands of incorrect computations each tax year. If they are wrong then appeal which you do simply writing a letter to your tax office asking for corrections to be made. Also remember that up to 3K of arrears can be collected through code number reductions so if HMRC's bill, if correct, is below this figure than you can ask for it to be recovered in this way and thus not have to pay out a large chunk all in one go.
It all goes back to checking code numbers on each and every time a new one is issued and writing to the tax office responsible asking for a correction on each and every time it is incorrect. This starts with your next years code number which, by the time it is issued you should have the Pensions Office's notification of your SP for the next year so the whole thing can be got right before the tax year starts. Don't panic, my initial tax code has been wrong these last 20 years and you could have knocked me down with a feather when they got it right this year, well nearly!
I do hope that I have been able to shed some light on your probable position.