Planning to Retire in Spain? Here’s What UK Nationals Should Know

Planning to retire in Spain, or just curious? A big part of your research should focus on how your UK pension will be treated.

The Spanish tax system has specific rules for different types of pensions, and the retirement income you have access to will be influenced by the decisions you make before your move to Spain.

So, how exactly does the Spain pension system work, and ​how are UK pensions in Spain taxed? What about wealth tax, and what are your alternative pension options? We’re answering all these questions and offering some broad-level expatriate financial advice in this article.

What to Know About the Spanish Pension System

Spain’s pension system is primarily based on the “pay-as-you-go” model, which essentially means that the people currently working in the country fund the pensions of the people who are currently retired.

As a UK expat, you probably won’t be eligible for a Spanish state pension—not unless you’ve worked and paid into the Spanish social security system for a minimum period. If you’ve lived in the UK for most of your life and you’re retiring in Spain, it’s much more likely that you’ll be relying on a private pension from the UK.​

Taxation of UK Pensions in Spain

If you’re a tax resident in Spain, your UK pension will typically be taxable. What makes you a tax resident? The main determining factor is if you spend more than 183 days in Spain during the calendar year, which you’re likely to do when you’re living out there.

The good news is that you won’t be taxed twice on the same income, thanks to the UK-Spain Double Taxation Agreement. But it’s worth noting that the type of pension and how you receive it can affect how it’ll be taxed in Spain:

• If you have a state pension, this’ll be taxed as general income in Spain.​
• Occupational and personal pensions are also taxed as general income.​
• A Self-Invested Personal Pension might be treated differently, sometimes as investment income, and this can have different tax implications.​

Another thing to know is that pension lump sums are fully taxable in Spain, so make sure to take yours while you’re still in the UK if you’re planning to.

What You Should Know About Wealth Tax on Pensions in Spain

If you have worldwide assets exceeding certain thresholds, your pension may be subject to wealth tax when you retire in Spain.

In most cases, you won’t need to worry if you have a UK pension, as these are generally exempt. But if you have a private pension, particularly one that’s not recognized as a standard pension in Spain, this might end up getting lumped in with your wealth tax calculation.

If you’re unsure whether you might get taxed on your pension, we recommend reaching out to one of our expat financial advice team to discuss your specific situation.​

Should You Transfer a UK Pension to Spain?

Since you’ll be living in Spain as a resident, you might be wondering whether it’s worth sticking with your UK pension or transferring it over to Spain.

There are a few benefits of UK pension transfers to a Qualifying Recognised Overseas Pension Scheme (QROPS) Spain, including currency flexibility, and you might also be eligible for some tax advantages.

But it’s worth being aware of recent changes made by the UK government, specifically the introduction of a 25% Overseas Transfer Charge for certain transfers. If you happen to be making a pension fund transfer to QROPS within the European Economic Area (EEA), like Malta, you’ll be exempt from this charge, but both you and the QROPS need to be in the EEA. ​

Alternative Pension Options

There’s a good chance that you already have a UK pension, but even so, that doesn’t mean you need to stick with what you have.

If you’re not yet retired and want to look into more flexible options, there are a couple of international pension structures that you might want to consider:

• Qualified Non-UK Pension Schemes (QNUPS), which let you make more flexible contributions and can offer advantages when it comes to your inheritance tax. ​
• An Individual Pension Plan, which is similar to a UK pension and lets you build up your savings outside of the state system.
• International Pensions, which are specifically designed for expats and offer multi-currency options, with a few different investment choices available.​

Not sure what’s right for you? An expat financial advisor can point you in the right direction.

Should You Seek Professional Advice?

On the surface, retiring in Spain with a UK pension fund is pretty simple. But there are still potential tax implications to be aware of, and a few different rules to get your head around.

If you know your situation is more complex or you just want to make the best choice for your situation, we recommend contacting a retirement planning expert who specifically works with UK expats in Spain and can offer pension advice tailored to you.

The best way to optimize your retirement income is to plan for your Spanish pension in advance and seek professional advice if you need it.