QROPS Considerations For Spanish Residents

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Over the years many UK expat pension members retire to Spain. When retiring to Spain (or any other country abroad) it is important to consider the best course of action for any accrued UK pension rights and, since April 2006, whether QROPS are a suitable option.
Spanish legislation, UK legislation or the rules of a potential QROPS, could all be factors in how a UK expat pension member is taxed on retirement benefits in Spain.

One of the primary considerations is income tax. Pension income is categorised as general income in Spain and has banded rates of tax, starting from 24% and rising to 43%. There are also allowances available. Currently there is a double taxation agreement between Spain and the UK, meaning a UK expat pension member, who is resident in Spain, would be taxed on their UK pension income  as a Spanish resident . Should an individual transfer their UK pension benefits to a QROPS, they would need to ensure that the QROPS pays the income at 0% as Spain would apply tax in addition to that deducted at source by the QROPS from the pension income.

Tax free cash, paid from a UK scheme would be treated as earned income – if received whilst being a Spanish resident. From a tax free cash perspective, it is therefore important that an individual takes advice on their UK pension options before migrating.

If a Spanish tax resident is a beneficiary of a UK pension or QROPS member’s benefits, inheritance tax (IHT) will be charged, by the Spanish Tax authorities, on receipt of that benefit to the Spanish resident. The amount of tax charged varies depending on the Spanish tax resident’s relationship to the deceased. It is important, therefore, that an individual knows if they are a beneficiary pre-migration.