UK pensions – 6 key things for British expatriates in Spain to understand

the UK).

Spain also applies an annual wealth tax. Although pension plans are generally listed as exempt from wealth tax, in 2019 Spain’s Directorate-General for Tax ruled that non-EU pension plans do not qualify for this exemption. Wealth tax therefore now applies to UK pension funds (from the point a member can take benefits).

pension created to receive monies from UK pensions when the owner has moved abroad. They can provide various benefits, depending on your situation and objectives.

Importantly, currently not all QROPS transfers are subject to the charge. If you live in the EU and transfer to an EU QROPS, it won’t be applied.

By Cathal Rochford,

4) The ‘lifetime allowance’ panies, these days employers often favour ‘defined contribution’ (‘money purchase’) pensions, where the financial commitment is quantifiable.

3) Taxation in Spain

Generally, if you are resident in Spain and have an NT tax code, your personal pensions are liable to Spanish income tax (only government service pensions are taxed in

The lifetime allowance is the maximum combined amount you can accumulate in UK pensions (excluding state pensions). It is frozen at £1,073,100.

Any amount above the allowance is subject to a one-off tax charge of 25% if the excess is paid as a pension or the fund is transferred abroad, or 55% for lump sums.

It applies wherever you live.

5) QROPS

A Qualifying Recognised Overseas Pension Scheme is an overseas

However, the 2021 Spanish Directorate-General for Tax binding ruling V2508-21 determines that unless a pension is either a Spanish pension contract or EU pension, a pension transfer from a ‘third country’ pension scheme to an EEA pension scheme is subject to a personal income tax charge on the fund value.

If you are still UK resident you could transfer to QROPS before you become resident in Spain and avoid the tax charge.

6) The ‘overseas transfer charge’

The UK introduced the overseas transfer charge in 2017 to deter people from transferring their pensions out of the UK for what the then Chancellor described as purely tax avoidance reasons.

If you move outside the EU within five UK tax years of making transfer, the overseas transfer charge may be applied retrospectively.

The bottom line is that pensions is an area that can be complex with some pitfalls not immediately visible and one to seek expert advice on.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

You can find other financial advisory articles by visiting our website here www.blevinsfranks.com.