The UK–Spain double tax treaty: how it works for property owners and retirees

What the UK Spain double tax treaty does

The UK Spain double tax treaty (formally, a convention for the avoidance of double taxation) doesn't create taxes. It divides taxing rights. For each kind of income it says whether only one country can tax, or both can, with relief from one. It replaced a 1975 agreement. Since 2023, parts of it are also modified by the OECD Multilateral Instrument, which mainly adds anti-abuse rules.

The treaty covers UK income tax, corporation tax and capital gains tax, and Spanish income tax (IRPF), non-resident income tax (IRNR), corporate tax and wealth tax. It doesn't cover Spanish inheritance tax. There is no UK–Spain inheritance tax treaty.

Residence and the tie-breakers

Each country first applies its own rules: the UK's statutory residence test, and Spain's 183-day and centre-of-interests rules (see Spanish income tax rates). If both countries treat you as resident, article 4 settles it in this order:

1. Permanent home: where you have a home available to you all year.
2. Centre of vital interests: if you have a home in both, where your personal and economic ties are closer: family, work, bank accounts and social life.
3. Habitual abode: where you spend more time.
4. Nationality: if still undecided.
5. Mutual agreement: the two tax authorities decide.

The tie-breaker decides only who has the main taxing rights under the treaty. You may still have to file in both countries.

Rental income from Spanish property

Under article 6, Spain can tax income from property in Spain. A UK resident who lets a Spanish flat pays Spanish non-resident tax at 24% on Modelo 210. On the Agencia Tributaria's position since Brexit, UK residents can't deduct costs, so the Spanish tax is on the gross rent. Even a home you don't let pays Spanish tax on an imputed income. See non-resident tax in Spain.

The UK also taxes its residents on worldwide income, so you report the rent on your Self Assessment return (foreign pages) and claim foreign tax credit relief. The credit can't exceed the UK tax on that income. Because Spain taxes the gross rent and the UK taxes the profit after costs, UK residents often end up with Spanish tax that is not fully credited.

Gains on Spanish property

Under article 13, Spain can tax gains on property in Spain. The same goes for shares in a company that gets more than half its value from Spanish property. A UK resident selling pays 19% Spanish tax on the gain, with 3% of the price held back by the buyer. See capital gains tax in Spain.

HMRC also taxes the gain, worked out in sterling using the exchange rates at purchase and sale. Since 30 October 2024, UK CGT is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, on all assets including property. The Spanish tax is credited against it.

UK Spain tax treaty pensions rules

If you move to Spain with a private pension, you can ask HMRC to stop taxing it at source using the treaty form, and pay Spanish tax instead. Government pensions stay taxed in the UK, but Spain may take them into account when setting the rate on your other Spanish income.

How credit relief works

Article 22 sets out the relief. For a UK resident, the UK allows the Spanish tax as a credit against UK tax on the same income or gain. For a Spanish resident, Spain does the same for UK tax. In both cases:

• the credit is limited to the home country's tax on that income, so excess foreign tax is lost;
• the foreign tax must be properly due under the treaty; tax paid by mistake isn't creditable, you reclaim it from the country that charged it;
• relief is claimed on your return, not given automatically.

Worked example: a gain

A UK higher-rate taxpayer sells a Spanish villa. The gain is €110,000 for Spanish purposes, taxed at 19%: €20,900. Say that is £17,500 at the exchange rate on payment. For UK purposes the gain in sterling is £90,000. After the £3,000 annual exempt amount, UK CGT at 24% is £20,880. The Spanish tax is credited: £20,880 − £17,500 = £3,380 left to pay to HMRC. Total tax is about the UK level, not both added together.

Worked example: rent

A UK basic-rate taxpayer lets a Spanish flat for €10,000 a year. Spain charges 24% on the gross rent: €2,400. After costs, the UK profit is £5,000, taxed at 20%: £1,000. The credit is capped at £1,000, so nothing more is due in the UK, but roughly the rest of the Spanish tax is not relieved. This is why many UK owners watch the challenge to Spain's no-deductions rule.

Related guides

For the bigger picture, see property taxes in Spain and inheritance tax in Spain. If you are thinking of buying and want a second look at a property, enter the address or referencia catastral on our free property check and we'll get back to you by email.