Taking your UK pension in Spain Tax and advisory issues to be aware of

First, though, you need to decide what to do with your pension, looking at the implications of living in Spain. Your savings need to last as long as you do, keeping you financially secure, with the income keeping up with the rising cost of living. It doesn’t help though, that UK pension and Spanish tax regulations change frequently, impacting your options and tax bill.

Spanish tax

Once you are resident in Spain, most UK pension income is only taxed here. Government service pensions remain taxed in the UK. There is no ‘tax free lump sum’ here. Although pension plans can be exempt from Spanish wealth tax, a 2019 tax ruling concluded that non-EU pension plans do not qualify for this exemption. Wealth tax therefore now applies to UK pension funds. This aspect of the law is subject to interpretation and change, so seek advice to understand the latest position.

QROPS

A 2021 ruling determines that unless a pension is a Spanish or EU contract, transfers from ‘third country’ pension schemes to EEA pension schemes are subject to personal income tax on the whole fund value, up to 49.5% in the Balearics. If you are not yet Spanish tax resident, you have the opportunity to transfer without this charge.

Other options

In any case, take specialist cross-border advice on the other options available for your pension and which is most advantageous for you. For example, consolidating several different pensions into a single SIPP could work well. You set it up with investment approach aligned to your attitude for risk, potentially improve your benefits, plus make life easier.

Pensions advice post-Brexit

Since pensions are complex, taking professional, regulated advice is essential. The problem here is that most UK advisers are not regulated to give advice to EU residents – they lost their ‘passporting’ rights with Brexit. In any case, it’s important to get local advice because most UK-based advisers do not have in-depth understanding of Spanish taxation or keep up to date with the frequent changes.

Find a qualified advisory firm which is regulated to provide advice on UK pensions in Spain and offers the specialist cross-border expertise you need: thorough knowledge of UK pension regulations and of both UK and Spanish taxation.

Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.

Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com