Do you have a UK registered pension and are you a tax resident in Spain?

If you are a tax resident in Spain and your pension is in the UK, you may be liable to pay tax in the UK. However, it might be possible to transfer your pension fund out of the UK into a Qualifying Recognised Overseas Pension Scheme (QROPS) and benefit from advantages.

If you leave your pension in the UK

If you leave your pension in the UK

From 6th April 2006, the rules for UK pension schemes including; retirement annuity contracts, small self-administered schemes, self-invested pension plans, personal pensions and occupational schemes; have been consolidated under ‘Registered Pension Schemes’ – either Defined Benefit or Defined Contribution Schemes.

Income Tax (UK) during the member’s lifetime

Income Tax (UK) during the member’s lifetime

More flexibility was offered to pension holders in April 2015 meaning that in most cases, 25% of pension pots can be withdrawn tax free whilst the remainder (no matter drawdown, lump sum or annuity income) is taxed at the pension holder’s marginal rate of up to 45%.

If income is sourced in the UK, than non-UK residents are liable to pay UK income tax on those earnings as is the case for earnings of UK residents. If you have a pension in the UK, this is counted as UK source income and so you are taxed at your marginal rate on the 75% that is not included in your tax free sum.

However, a Double Tax Agreement (DTA) between the country in which you are resident and the UK can mean that you are exempt from UK tax – choosing instead to pay tax where you are resident.

DTA between the UK and Australia

DTA between the UK and Spain

There exists a DTA between Spain and the UK. This means that UK pension holders resident in Spain pay tax in Spain and are not taxed at source in the UK.

Pension benefits

Pension Death Benefits Payment – UK Tax

From 6 April 2015, the UK tax treatment of benefits from DC schemes on death depends, amongst other things, on the age of the member at the time of death (i.e. pre or post 75). From this date, generally, there should be a lower UK tax cost on passing pension value to heirs on death. However, that said, there is still a possible current tax rate of up to 45%.

For those that are non-UK resident and have a QROPS, the UK tax cost on succession can be less.

Gibraltar QROPS

Gibraltar QROPS

QROPS can be transferred to Gibraltar. Gibraltar has no DTA with Spain and the obligatory Gibraltar income tax charged on pensions is 2.5%.

Without a DTA between Gibraltar and Spain, pension payments from a Gibraltar-based QROPS are taxed at 2.5% by Gibraltar. Tax residents in Spain would incur Spanish tax but would also benefit from the tax credit of 2.5%.

Inheritance tax is not applicable in in Gibraltar and the jurisdiction also protects against UK inheritance tax. Additionally, as with Malta, if the individual has been non-resident in the UK for five years or more, than death benefit charges are not levied.

Malta QROPS

Malta QROPS

QROPS can be transferred to Malta.

The DTA between Spain and Malta means that pensions held in Malta are taxable only in Spain for Spanish tax residents. This includes QROPS – so Malta charges no tax – but special regulations apply to Social Security and Government Service pensions.

If the pension holder has not been a UK resident for 5 years or more or the amount withdrawn is less than €100,000, UK income tax is not applicable. If the individual has been a non-resident of the UK for 5 years (similarly to above), than Malta also protects against death benefit charges.

There is no inheritance tax in Malta and the jurisdiction protects against UK inheritance tax.

Tax Options

Leave the Pension in the UK

Leave the Pension in the UK

If the pension stays put in the UK, and the individual is a resident of Spain, then UK taxes do not apply. Spanish taxes do apply to residents of Spain. Death benefit charges still apply to funds in the UK.

Gibraltar QROPS

Transfer to a Gibraltar QROPS

If this option is taken and the UK pension is transferred to a QROPS in Gibraltar, than the individual must have been a non-UK resident for five years or more to benefit financially. Gibraltar tax of 2.5% is paid rather than UK marginal tax rates. Spanish tax residents pay tax in Spain but credited with the Gibraltar tax under the foreign tax relief regime. UK death benefit and inheritance protection apply to long-term non-UK residents with a Gibraltar QROPS.

Malta QROPS

Transfer to a Malta QROPS

If the pension is transferred to a Malta QROPS, the same requirements of five years as a non-UK resident apply before the individual is protected from UK taxes and death benefit charges. Maltese income tax is not paid due to the DTA between Spain and Malta. Tax is paid in Spain as a tax resident and no inheritance tax applies in Malta or from the UK.

Make smarter, safer decisions for your pensions.

« View another country
Help me with my pension »
  • “Thank you AES International for helping me and my family with your low cost no-nonsense approach. It is refreshing!”

    AES International Reviews

    Kristian Petersson

  • “With this sort of banking service you also expect to be paying very high fees, but it’s just not the case. I would definitely recommend this to other expatriates, especially those with connections to the UK.”

    Jake van den Dries

    Jake van den Dries

  • “In the short time that I’ve been using AES I’ve made nearly ten thousand pounds and couldn’t be happier!”

    AES International Reviews

    Jackie Pym

International Pension Transfer
How you can benefit from our pension experts:
  • You get the expertise of leading world experts who are UK-authorised
  • Independent analysis to help your decisions
  • Fast service with the best prices
  • Global coverage
  • Integrated investment advice when required

Yes, help me make the most out of my pension »

This general information has been provided on the basis of our understanding of the current legislation in the UK, Gibraltar & Malta as of April 2015. Should any of the information provided be inaccurate, incomplete or misleading, we take no responsibility for any reliance placed on it. We recommend that individuals always seek specialist multi-jurisdictional (where relevant) tax advice so that their individual circumstances can be fully considered.