UK Pensions And Tax In Spain

What happens to your UK pensions in Spain and what taxes will you be paying when you move to Spain in retirement - a full overview of your pension options and tax liabilities

In this article, we’ll cover UK pensions and taxes for retirees in Spain. It’s important to know what your options are when it comes to your UK pensions in Spain and what your tax liabilities will be before you move to Spain, so you can make sure you have all your planning in order before you relocate.

Do you have multiple retirement income sources?

The first thing you need to know is that your pension income may come from multiple sources. 

You may be in receipt of the government state pension as well as a government service pension, you may also have income from an occupational pension or a personal pension. 

With the exception of any government service pension income that you get from the UK, all your worldwide pension income will be subject to Spanish income taxation. 

Each type of income may be classed differently for taxation reasons in Spain.

Your UK state pension tax in Spain

You state pension income is taxed in the country in which you are a tax resident. 

If you move to Spain permanently and have been in residence for over 183 days in their tax year you will generally be considered tax resident in Spain.

Your UK state pension will be taxed a regular income in Spain according to Spanish rates. Spanish income tax rates currently run in incremental stages between 24 to 43%, but these figures change annually so check.

Other pensions

The way income from personal pensions is treated in Spain can differ from your state pension income.

This is because there is a slight differentiation between the true meaning of the term ‘purchased annuity’ in Spanish and in English when it comes to tax. 

Basically, purchased annuities are taxed favourably in Spain.  Some pensions allow the pension account holder to purchase an annuity from an insurance company with a percentage of their pension pot. 

This annuity then pays out an income for the duration of the life of the account holder.  This type of income from an insurance company is taxed favourably in Spain.  So favourably in fact that 76 percent of it is tax-free.

When it comes to private pensions where a trustee has bought the annuity on behalf of the pensioner this can be taxed in the same way.

Although some tax offices in Spain treat this income as pure income and tax all of it according to the usual progressive rates. 

You really need to bring in an adviser at this point to help you find the most tax-efficient way of declaring this income because once it has been deemed taxable in a certain way, you cannot then change the way it is taxed.

Finally, you have your government services pensions that people who have worked in the civil service or as teachers or firemen might receive. This does not include NHS pensions.  This type of government service pension income is taxed at source in the UK.

Transferring your UK pension abroad

In some cases, it might be worth looking at transferring your pension to QROPS (in either Gibraltar or Malta).

There may be benefits, such as accessing a bigger tax-free lump sum, protecting your assets from UK inheritance tax and gaining access to a wider variety of investment options. Again, it's important to seek qualified financial advice before taking any action.

Financial advice is important

At this point, it is important to mention that if you’re moving to live in Spain you should really take taxation and financial advice from a qualified international independent financial adviser and/or an accountant.

Each individual’s financial situation is very different and you need personalised advice about your own affairs from a qualified person. 

As you are leaving the UK and are about to acquire residency somewhere else, an international financial adviser might be the one you need to speak to.

An international financial advisor will be able to understand your expat status and how that relates to your tax position and can provide invaluable advice including:

  • A detailed assessment of your current UK residency status, including recommendations on how you could reduce your tax burden
  • A full analysis of your tax position in your country of residence
  • Guidance on your current pension options, including any pension transfers which you may be considering
  • Options and recommendations on how to tax efficiently manage UK assets, such as UK property
  • Opportunities to reduce the inheritance tax exposure on your estate

How much can financial advice cost?

Usually, initial consultation with a financial advisor and the following report about your options come free. It is then up to you whether you are totally happy with the report and want to proceed.

If you do so, the fees that apply will be disclosed to you. You will have to pay for your pension transfer. If you want ongoing management of your investment, there will be annual charges for this as well.

It might be worth speaking to different advisories to see what they can offer, however, don’t expect the fees to differ too much.

Always ensure any adviser you work with is correctly regulated, qualified and licensed, and ideally backed by a brokerage large enough to have influence with the major financial institutions.

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  1. I live in spain and became a uk state pensioner in september of which I received in october 2021 will the international centre for state pension inform the spanish tax office of my details and when do I need to pay tax thank you.

    • Hi Colin,
      I wouldn’t bet on the international centre for state pensions informing the Spain tax authorities of anything, it would probably be best to consult a tax specialist in Spain to make sure you are compliant and not double taxed.

  2. Does this mean that if I retire to spain I will pay tax on every penny of my uk state pension? Even if I had no other source of income? (I have a small private pension as well but all together I’m pretty certain it would come in under £12000 a year).

    • Spanish residents with UK state pensions or occupational pension income are taxable in Spain and not in the UK, under the UK-Spain Double Taxation Treaty. If you receive UK Government service pensions (e.g. civil service, local authority, fire service, police, and most teachers) these are taxable only in the UK. It’s always advisable to talk to a tax specialist to make sure you don’t overpay and stay compliant.

      • I’m not sure I understand. If I have my uk government pension which my pension forecast says will be £9986.46 and a tiny private pension of £1900.00 which together are £11886 per annum – will I pay tax on this if I retire to Spain? I know I won’t if I stay in the uk as it’s within my personal threshold.

  3. Hello, I am planning on retiring early and am looking to use my private pension in a draw down manner rather than buying an annuity. Please can you tell me how much tax I would have to pay on that in Lanzarote Spain based on €18000 per year. Thanks