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
Your 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 as 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
How 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. However, many 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 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 independent international 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, licensed, and ideally backed by a brokerage large enough to have influence with the major financial institutions.
You might find useful:
- Living In Spain As An Expat: practical information and tips on moving to Spain from the pros and cons to visas and residency, to the cost of living and more.
- Best Places To Live In Spain – the best and most popular expat locations in Spain.
- Expat Financial Questions Answered By A Professional Wealth Manager – FAQs about moving to Europe after Brexit: your tax obligations, pension options, wills, estate planning, savings and investments, and more.
- Haven’t found what you were looking for? Contact us or comment below with your question and we’ll do our best to help.
15 comments
Maria
If you live in Spain and receive a UK State Pension, you must declare it to the Spanish tax authorities after applying the double taxation treaty between the UK and Spain. We can assist you with this if needed.
Bruce
I am a UK ctizen but have lived most of the last 40 years in Spain. I`m 64. At present I have just over 32 years of Social Security contributions. I have continued to make voluntary UK contributions so have 35 years of UK contributions. With changes in both countries my date to receive a UK pension is January 2026 and for Spain January 2027. I could retire earlier if I had more years of Spanish contributions. Can I combine contributions from both countries to reach minimum to retire in Spain (38 years I think)?
Thank you.
Maria
Hi. Regarding annunities, you say that “[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”, i.e. benefit from lower taxation. However, I read in other websites that “contributions from employers to personal pensions may not benefit in their entirety from the annuity allowance”. Are these two sentences contradicting each other? If the latter is true, what’s the best way to ensure my annuity pays the least taxes in Spain? My employers and I have contributed similar % toward my pension pot (me slightly more). Thanks!
Ola Degteva
Hi Maria, it is not clear and depends on what Spanish authorities recognise as an annuity. The best way to proceed is to have a chat with a tax professional in Spain. You can get in touch with our Spain’s expert Maria Luisa, her team help expats with legalities and taxation matters: https://expatra.com/author/marialdecastro/
Teresa
Hello
Please could you tell me if I pay tax in Spain for my small NHS pension – approx £5,000 a year
Thanks
So many say I shouldn’t – as it’s a U.K. Government pension but my accountant says NHS pensions are taxed in Spain – I’ve got to trust someone so am going to trust my accountant but would like your input so I can tell others – thank you 😊
Ola Williamson
Hi Teresa, on the surface of it, if you are a Spanish resident with UK state pensions or occupational pension, your income is taxable in Spain and not in the UK, under the UK-Spain Double Taxation Treaty. We are not tax specialists, so I advise trusting your accountant. You do not want to have any tax issues in the future, so it’s best to follow professional advice. Best if luck,
Paul
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
Ola Williamson
Hi Paul,
Unfortunately, we are not a cross-border tax specialist, so cannot help you here. The best way for you is to contact Ben Noifeld, our financial expert in Spain. You will find his contact details here: https://expatra.com/articles/money/expat-financial-faq/
Paul
Thank you
Lily
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).
Ola Williamson
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.
Lily
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.
Ola Williamson
Hi Lily, we are not qualified to give tax advice, please get in touch with our Spain expert Maria for more information on taxes. Maria’s company helps expats with all legal things, taxes, etc. marialuisa@costaluzlawyers.es
Colin
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.
Ola Williamson
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.