UK expats living in Spain may be able to transfer their UK pension to SIPP or QROPS pensions in Spain. Spanish residents can secure their pension and manage it more effectively by transferring their UK pension to a SIPP (Self-Invested Personal Pension) or QROPS (Qualifying Recognized Overseas Pension Scheme). As a UK citizen or resident, you can transfer your UK pension to a Spanish SIPP or a QROPS, offering extensive benefits.
What if UK Persons in Spain Transfer Their Pension to a SIPP or QROPS?
For one thing, UK pension transfers to SIPPs or QROPS will result in increased flexibility and greater control over your retirement funds. With either a SIPP or QROPS, UK pension holders are assured of control over how the pension funds are invested. It’s entirely possible to modify the investment as needed. Further, UK pension holders can opt for regular disbursements based on individual preferences. If you transfer your UK pension to a QROPS while living in Spain and have been a non-UK resident for more than five years, you generally won’t have to worry about UK taxes on that pension. However, Spain might tax any withdrawals you make.
Life in Spain differs entirely from the UK. Many UK persons in Spain have fully embraced Spain’s relaxed European lifestyle. But it’s equally important to maintain financial stability through UK pension transfers to International Self-Invested Personal Pensions, a.k.a. SIPP. The other option is a Qualifying Recognized Overseas Pension Scheme, a.k.a. QROPS. It is possible to reduce your total tax liability and derive important benefits from Spain’s much more straightforward, optimized taxation systems. Over time, these Spanish benefits can prove invaluable by increasing your available pension income during retirement.
Of course, SIPPs and QROPS are not created equal. Some are better than others. It’s important to consult with expert retirement planners who can guide UK pension holders on these matters. Transferring a UK pension to a SIPP or QROPS in Spain is often a rather complicated process, and getting it done right the first time is best. In all cases, the goal is to ensure that your pension funds are managed effectively and that your retirement is safe and secure. And the reason for this is clear – you want your pension to fund your retirement and all attendant living costs in Spain.
What happens with Tax Obligations for UK persons in Spain?
As a Spanish resident, UK pension incomes will be taxed in Spain, not the UK. Of course, there are exceptions to the rule, notably Government Service Pensions (GSP), which typically get taxed only in the United Kingdom. You can save on taxes if you haven’t taken residence in Spain yet (but intend to) and you want to draw a lump sum – instead, do it while you are a UK resident. You will save substantially on taxes that way. And the reason for this is that there aren’t any tax-free lump sums in Spain.
Remember, annual wealth taxes are imposed in Spain. However, pension plans may be exempt. The Directorate-General for Tax (DGT) 2019 stated that non-European Union pension plans don’t qualify for this exemption. Since the United Kingdom left the European Union with Brexit, UK pension funds are liable for Spanish wealth tax. These wealth tax rates range from as little as 0.2% up to 3.5%, but there are individual allowances of €700,000 for residents and €300,000 allowances for your primary home.
Tax obligations for UK persons in Spain with QROPS require further analysis. If you have a UK pension and move it into a QROPS, you will benefit from this switch. As stated earlier, these benefits include but are not limited to, greater flexibility with estate planning, investment options, and having your investments within the QROPS in the same currency as your living expenses. Importantly, you’re protected from any unfavorable UK pension reforms, which are entirely possible with the change of government. If pensions are not compliant with Spanish laws, the pension account holder may be subject to personal income tax on the entire fund value.
As a UK pension account holder, it’s essential to consider all the options. Spanish income tax rates range from 46% – 54%, based on where you live, on the total fund value. UK persons in Spain who are not Spanish tax residents yet are able to transfer to QROPS without this punitive tax rate. Additionally, if you establish residence in Spain during H2 (the second half) of the year, you are not deemed a Spanish tax resident until next January. It’s always important to consult with a tax planning consultant for retirement in Spain before you make any hasty decisions. Whenever tax-related matters come into the equation, maximizing retirement benefits and minimizing tax obligations is best.