Spain

Understanding Spanish tax affairs are very complicated, as with most countries – especially regarding UK pensions. The Spanish tax authorities can impose severe fines if tax is not paid and declared in the correct way.

Considering over 1 million expats live in Spain, it is important to understand tax legislation properly. Legislation changes annually, which makes this hard to achieve, but we update our records on a regular basis to ensure the information we provide is applicable today.

This page explains Spanish tax legislation in plain English, cutting out the jargon and explaining things simply.

The areas we will cover include:

General Tax Information

  • Reporting for foreign assets.
  • Spanish tax position for residents including the definition of a tax resident, income tax rates, savings tax rates and personal allowances.
  • Spanish tax position for non-residents.
  • Spanish tax secrets – ‘the Beckham Law’
  • Other taxes including CGT, IHT and gift tax, wealth tax, IVA/VAT, Corporation tax and social security.
  • Spanish Compliant Bonds


UK Pension Information

  • UK Pension Options
  • Taxation on UK pensions
  • Taxation on QROPS
  • Problems with QROPS
  • Should I transfer to a SIPP or QROPS?

It is important to note that the information provided on this website is just a guide. Hence, before making any decisions we advise engaging with one of our expert independent financial advisers and seek tax advice from a specialist, to discuss your personal requirements. CLICK HERE to request a call back.

Foreign assets reporting law in Spain

Since March 2013, anyone living in Spain must declare their assets in excess of 50,000 EUR outside of Spain. Failure to declare your assets can result in serious penalties or even criminal charge, if the tax avoidance is in excess of 120,000 EUR. Assets include the likes of property, shares, life insurance policies, assets in a bank account such as ISAs and so on.

The Spanish law implemented this rule to increase Spanish tax revenue while also reducing levels of tax avoidance.

As a result, many of the assets held offshore will no longer be tax efficient in Spain. It’s important that you speak to an independent financial adviser to explain how you can make these assets more tax efficient. CLICK HERE to request a call back from one of our highly experienced financial advisers.

Spanish Tax Position for Residents

All individual tax residents in Spain are taxed on their worldwide income at progressive rates. It is important to note; the Spanish tax year runs from 1st January to 31st December.

If you have been living in Spain for more than 183 days in a calendar year, you are deemed as a resident in Spain for tax purposes. This is also the case if your spouse is tax resident in Spain, your economic interest is in Spain or your main interest is in Spain which could include things such as your family etc.

Income tax for Spanish residents: 2020-2021 income tax bands are as follows for annual earnings between:

0 – 12,450 EUR 19%
12,450 – 20,200 EUR 24%
20,200 – 35,200 EUR 30%
35,200 – 60,000 EUR 37%
60,000 EUR plus 45%

Table A

Please note, tax rates can vary depending on the region where you live.

Savings tax rates are as follows:

0 – 6,000 EUR 19%
6,000 – 50,000 21%
50,000 EUR plus 23%

Table B

Please note, residents of Spain are subject to additional income tax when filing their annual income tax return between 2 – 4% depending on the value.

Personal allowances are as follows:

  • The basic personal allowance for under 65-year olds is 5,500 EUR per year. The allowance increases to 6,700 EUR if you are over 65 and increases again to 8,100 EUR if you are over 75.
  • If you have children under 25 living with you that earn less than 8,000 EUR per year, then you can claim an extra allowance of 2,400 EUR per year for the first child, 2,700 for the second and 4,000 for the fourth child.
  • If a grandparent or parent lives with you, you can claim an extra 1,150 EUR if they are earning less than 8,000 EUR per year only if they are over 65 years old. You can claim an allowance of 2,550 EUR per year if they are over 75.
  • If you are married, you can choose to be taxed separately or together. The married couple annual allowance is 3,400 EUR which is known as ‘declaracion conjunta’.


Spanish Tax Position for Non-residents

If you live in Spain less than 183 days per calendar year, you will be classed as a non-resident in Spain for tax purposes. Non-residents only pay tax on income earned in Spain, not worldwide assets. Your income is taxed at a flat rate of 24% for non-EU citizens and 19% for EU citizens. To apply for non-resident income tax status in Spain you must complete a Modelo 149 form. To make your annual declaration, use Modelo 150.

Special Expat tax rates are known as ‘the Beckham Law’

This Spanish tax law is named after English footballer David Beckham as he was one of the first people to ever use it. The law applies to everyone but was designed to attract footballers who didn’t want to fall under Spanish tax rules and pay Spanish tax on worldwide assets if they lived in Spain over 183 days a year. It has been applied to expatriates since January 1, 2004.

The law allows people to choose whether they are taxed as a resident or non-resident of Spain so long as certain criteria are met, such as:

  • A person cannot have been resident in Spain over the last 10 years.
  • Must have moved to Spain to take up employment under a contract.
  • The company you work for must be a Spanish company or must operate through a permanent establishment through Spain.
  • Must not have been in Spain longer than 6 months before applying.

Under ‘the Beckham rule’, Spanish income is taxed at a rate of 24.75% on gross income only arising in Spain. There is no Spanish income tax on any income arising outside of Spain including foreign pension income.

Other taxes

Inheritance and gift tax (succession tax)

Succession tax in Spain has been changed so that non-residents are now treated the same as residents. There are certain limits on who you can leave your property to. The rates vary between 7.65% – 34% depending on where you live in Spain.

Wealth tax

Wealth tax is a tax based on the market value of assets that are owned by an individual. In Spain, the rate of wealth tax varies between 0.2% – 2.5% (Andalucía 3.03%). Wealth tax only applies if your wealth is over 700,000 EUR. Non-residents will only pay wealth tax on assets in Spain while residents will pay wealth tax on worldwide assets. Spanish tax residents receive an extra €300,000 deduction.

There are many methods that can reduce your tax liabilities in the correct manner, although if done incorrectly you could face serious consequences and penalties. If you have any concern regarding how your assets may be taxed now or after death, we recommend you speak to tax experts or independent financial advisers. CLICK HERE to open up a no-fee, no-obligation discussion with us about your financial situation.

VAT/IVA

You have to pay 21% IVA (VAT) regardless of your annual turnover on goods and services. It has to be paid every January, although it needs to be recorded every quarter and annually via the VAT declaration or Modelo 390. You don’t have to submit a VAT return nor are able to reclaim VAT on your own costs if you provide exempt services. You may be exempt from paying VAT if you provide business services outside of Spain but within another country in EU that you pay VAT in.

Corporation Tax

Corporation tax is subject to a rate of 25% in Spain, although newly formed companies only pay 15% in the first 2 years. Business tax returns need to be done every 6 months, 25 days after the accounting period.

Social security

If you are registered as self-employed also known as ‘autonomo’ then you will need to contribute 286.15 EUR a month if you earn over the Spanish minimum wage of 9,080 EUR. This entitles you to health care, and a pension if you have paid into the scheme for over 15 years. You can pay additional contributions to receive a higher pension.

Discounts apply under certain circumstances. If you have not registered as autonomo in the previous 5 years, you can apply for an 80% discount for the first 6 months, 50% discount for the following 6 months and 30% discount for the remaining 3 months. This benefit also applies to those under 30 years of age.

Spanish Compliant Bonds

Using Spanish Compliant Bonds offers a direct tax advantage. Specifically-designed plans for expats in Spain offer income tax and succession tax advantages. The Hacienda recognises them as tax-efficient. Probably the best way to illustrate this is by a direct comparison between non-compliant investments and Spanish compliant investments.

Non-compliant tax

Mr Expat invested €100,000 in a non-compliant offshore investment bond in September 2019, and a year later the bond had grown by 10% to €110,000. Good news so far, until the taxation is considered as follows:

  • No withdrawals have been taken at all.
  • The Gain is €10,000, taxable as savings income (renta del ahorro).
  • The first €6,000 is taxed at 19%, the remaining €4,000 at 21%. The calculation needs to be made by Mr Expat (or he could pay a Gestor or Accountant to do it) and the tax paid on the annual tax return.
  • The total savings tax bill would be €1,140 + €840 = €1,980 (19.8% tax).


Had Mr Expat invested in a Spanish Tax Compliant Bond instead, no savings tax would be payable as no withdrawal was taken and he would not even need to declare the plan to the Hacienda.

Spanish compliant bond taxation

Firstly, if no withdrawal is made, there is no tax to pay – a huge saving in tax.

Now assume the €10,000 gain is withdrawn. The important consideration here is that partial withdrawals are apportioned partly between “redemption of capital” (from the original investment) and partly from the gain.

Most clients we meet wrongly assume the tax would be the same as their current non-compliant investment of €1,980 (19.8% of the gain). But this is not the case at all. The tax due would be reduced significantly as calculated in the three stages below:

First calculation

  • €110,000 minus €100,000 = gain €10,000, straightforward so far.


Second calculation

  • New value €110,000 / gain €10,000 = 9.09% Therefore €10,000 x 9.09% = €909 (slightly confusing but bear with me).


Third calculation

  • The €909 is the taxable gain as the Hacienda sees it. Therefore €909 taxed at 19% = €172.71 (1.72% of the gain).

Mr Expat would be taxed €1,980 in a non-compliant investment even if no withdrawals had been made, whereas in a Spanish tax compliant bond he would only have a tax bill of €172.71 even when taking the full €10,000 and zero if no withdrawal was made. A tax saving of €1,807.29 in the first year.

This is a spectacular difference in a country’s treatment of investments where tax is concerned.

If these dramatic tax savings have not made your ears prick up, then consider these additional advantages of Spanish compliant investments:

  • No need to declare on Modelo 720.
  • They are “tax-compliant” as seen by the Hacienda.
  • Tax is calculated by the bond provider and paid directly to the Hacienda on your behalf with no need for you to do any calculations or to pay someone else to do it.
  • No need for probate on death.
  • Multiple currencies available €, £, $ etc.
  • They are Inheritance Tax efficient.
  • Large range of available investments whether you like investment risk or not, including some capital protected funds for low-risk investors.

Your current investments may be causing you problems with non-declaration or draconian tax bills. The time to review your investments in line with your Spanish tax Residency is now. CLICK HERE to request a no-fee, no-obligation call back from one of our independent financial advisers.

UK Pension Options

  • Retain the existing benefits
  • Transfer to an overseas scheme (ROPS)
  • Transfer to an alternative UK scheme (SIPP)

1. Retain the existing benefits

For many people, leaving your pension where it is might be the best option, depending on whether you have a defined contribution or defined benefit pension. Some pensions have very good guarantees before and after retirement as well as on death. Other pensions may have restrictions about how you can access your funds, high fees, limited investment and currency options among other things.

Understanding what your pension offers you as well as understanding what your needs and objectives are is important before looking at other options as your pension could be suitable where it is currently based. We provide a free initial consultation to first understand what type of scheme you have in order to give you a fair understanding of whether it is worth looking into alternative options.

To speak to an independent financial adviser as SJB Global, CLICK HERE to complete the form at the bottom of the page so that a specialist can get in touch with you. Some of the main reasons people look at moving away from their scheme are listed below:

  • Defined Contribution pensions – some of the main reasons people transfer away
    1. Avoid purchasing an annuity – Many UK schemes only allows the option to purchase an annuity such as Prudential, Scottish Widows, Canada Sun Life and many more. At the time of writing, annuity rates are at record lows, meaning you must live around 40 years to get your money back. They also provide no flexibility and is the main reason pension freedoms came into play to give people the freedom to transfer to more flexible schemes such as a SIPP or QROPS.
    2. Multi-currency options – UK pensions only have the option to have your pension denominated in Sterling whereas SIPPs and QROPS allow multi-currency. This has become ever more important in times when Sterling has weakened against its peers as retirees who are relying on an income in any other currency other than Sterling have seen their income drop by 30% over the past 3-4 years due to currency fluctuations alone. If this deduction reduces your income below your means of living, then you may find yourself going back to work in retirement.
    3. Diversified investments – UK pensions are only invested in UK markets. This can have a detrimental effect on your returns as seen below:
      1. The FTSE 100 (UK stock market) has returned 54% between March 2009 to August 2020
      2. The S&P 500 (US stock market) has returned over 470% over the same period.Clearly, it makes sense to have the option to diversify and invest outside of the UK market, both of which are options if you transfer to a SIPP or QROPS.
    4. Consolidating pensions into one pot – Should you have various pensions with different providers then it can be difficult to manage pre- and post-retirement. Consolidating them into one place with online access and a financial adviser providing regular updates can help you manage your pensions much more effectively. CLICK HERE to request a call back from a specialist financial adviser.
  • Defined Benefit pensions – some of the main reasons people transfer away
    1. Greater Flexibility – Defined Benefit Schemes offer a guaranteed income for life from your normal retirement date. This is a good guarantee that is lost should you transfer away. However, a guaranteed income is rigid and cannot be changed once you begin to receive your pension. Transferring to a SIPP or QROPS allows you to have the below flexibilities:
      1. You can access your pension earlier or defer it to a later date without penalties, unlike a DB scheme.
      2. You can invest in any regulated investment.
      3. You can take 100% of your pension as a lump sum, providing you are over 55.
      4. You can increase or decrease your income. Reasons could be:
        1. You become ill and want to spend the money while you can.
        2. You never want to access the funds and therefore pass them to your family.
        3. You can decrease or stop your income if you find part-time work or receive an inheritance in retirement.
      5. There are many other reasons.
      6. You can take ad-hoc lump sums through retirement. Reasons could be:
        1. To give money to a loved one.
        2. To go on holiday.
        3. To buy a property.
      7. You can take your 25% pension commencement lump sum and then defer taking the rest of your pension until whichever age you wish. The reason could be:
        1. You want to pay off your mortgage and then defer taking the rest of your pension until you are retired.
        2. Purchase an investment property or business idea and then defer the rest of your pension until you are retired.
    2. High cash equivalent transfer values – Transfer values have increased significantly over recent years because the amount you receive is closely linked to UK gilt rates. As interest rates have been held at record lows and the government have been buying bonds through “quantitative easing” for such a long time, bond yields have fallen to record lows.Your scheme will provide you with a “Cash Equivalent Transfer Value” (CETV) which is the amount of money the scheme requires to purchase your guaranteed income in today’s money. As yields fall, transfer values go up. If yields fall too much, schemes will struggle to pay guarantees as the performance of the assets they hold could become lower than the amount of money they need to pay for your guarantees. What once was a benefit, could, in turn, become a drawback, as schemes have the right to offer a reduced transfer value should they be unable to pay members benefits.Therefore, if you are ever going to make a decision to transfer your pension, now is the time. This is extremely valuable and is a very good reason to consider transferring away from your scheme while this offer is still available. CLICK HERE to contact us today.
    3. Reduced Life Expectancy – Although this is a very morbid thing to think about, it is an important factor to consider when reviewing a defined benefit pension. The analysis you receive will compare the income between when you retire until you die and work out whether you would be better off in the scheme you are in or in a SIPP or QROPS. Advice is calculated using the average life expectancy for both male and females in the UK.Therefore, if the life expectancy is much lower in your family, spending more in earlier years becomes much more important as you can access 100% of your pension from age 55 in a SIPP or QROPS. This means that should you become ill, you can spend your pension before you die or pass 100% of the remaining pension to your loved ones.
    4. Avoid pension going into the PPF – The pension deficit of defined benefit schemes has been increasing significantly over the past decade. Many large defined benefit schemes have gone into liquidation over the past few years such as BHS, British Steel, Carillion and many more. When schemes go into liquidation, they enter the pension protection fund (PPF) and you automatically lose 10% of your pension and potentially much more. In many instances, some of your guaranteed increases could also be lost completely.It is important to note that the PPF is not backed by the treasury and could also go into liquidation should too many schemes enter. The PPF as of June 2020 is in fact in deficit. Upon transfer to a SIPP/ROPS, you will be protected against your scheme going into liquidation. Your funds are completely ring-fenced inside a SIPP/ROPS, meaning that if the SIPP/ROPS trustees go into liquidation, your funds are completely protected.There are many other benefits and drawbacks in addition to the ones mentioned above. Some schemes have restrictions or penalties to transfer away which may defer a transfer being in your interest. We help you understand whether it is worth looking into alternative options and if it is, we can then access whether a QROPS or SIPP would be more beneficial.Help us to help you by filling in the form below or CLICK HERE.

2. Transfer to an overseas scheme (QROPS)

A QROPS stands for Qualifying Recognised Overseas Pension Scheme; an alternative pension that accepts transfers from a UK defined contribution and defined benefit scheme. Spanish residents qualify for a transfer to a QROPS; however, in 2017 the government announced a 25% overseas transfer charge to anyone who transfers to a QROPS that is based outside of the EEA.

Following the UK government spring budget on 8th March 2017, HMRC released an update in their Pension Schemes Newsletter on a few key points, including the QROPS rules, which we need to bring to your attention:

Transfers to QROPS requested on or after the 9th March 2017 will be subject to a 25% tax charge, unless;

  1. The ROPS is in the EEA and the Member is also resident in a EEA country
  2. Subject to the 5-year rule, where the exemption proceeds no longer apply, the 25% charge can be retrospectively applied. However, curiously, within the newsletter from HMRC, they confirm that “A change in member’s circumstances within 5 years may result in a change to the tax treatment of the original transfer and could lead to a repayment being due.”

Benefits of a QROPS are as follows:

  • Payments from a QROPS are from UK income taxes
  • You will be entitled to a 30% lump sum from the age of 55.
  • You will be able to withdraw from your pension via drawdown or Flexi-access in Malta but not in Gibraltar.
  • You can withdraw 100% of your pension from age 55.
  • Much greater investment choice.
  • Have your pension denominated in any major worldwide currency.
  • You will no longer be subject to UK pension legislation changes.
  • There is no lifetime allowance.
  • UK pension death tax does not apply.
  • Fees are much more expensive than a SIPP.

3. Transfer to an alternative UK scheme (SIPP)

SIPP stands for ‘Self Invested Personal Pension’. It is recognized as an international pension scheme that HM Revenue & Customs (HMRC) identifies as eligible to receive transfers from registered pension schemes in the UK. To qualify as an international SIPP, the scheme must meet the requirements set by UK tax law and you must be a non-UK resident.

SIPPs can receive the transfer value from your scheme and then the funds are invested to provide you with retirement benefits at any time from age 55.

Most SIPPs are ‘money purchase’ or ‘defined contribution’ schemes where the member knows how much they are investing, but not what they will receive, because the pension fund size will depend upon the performance of the underlying investments of the SIPP. The performance is not guaranteed.

A major benefit of a transfer to one of these arrangements is that your pension fund does not force you to buy an annuity and could therefore be passed on to a nominated beneficiary on your death – in some cases, free of UK tax. Additional benefits would include: wider retirement options, greater investment choice, ability to have your fund managed by an overseas IFA, choice of any major currency denomination, plus more:

  • Payments from your UK pension will be taxed as ‘earned income’ at source by HMRC, although this can be avoided, although this can be claimed back under the double taxation treaty.
  • You will be entitled to a 25% lump sum from the age of 55.
  • You will be able to withdraw from your pension via drawdown or Flexi-access.
  • You can withdraw 100% of your pension from age 55.
  • Much greater investment choice.
  • Have your pension denominated in any major worldwide currency.
  • You will be subject to any UK pension legislation changes.
  • Lifetime allowance of £1,073,100. Anything in excess can be taxed up to 55% or 25% depending on how you take your benefits when you retire.
  • UK pension death tax applies to UK pensions regardless of where you are resident. This means if you die after the age of 75, your pension will be taxed at your beneficiary’s marginal rate on receipt up to 45%. This may also be claimed back from HMRC and avoided in most circumstances.

Comparison of SIPP vs ROPS

  • There could be a 25% overseas transfer charge applied to a ROPS transfer if you don’t live in the EEA or you move outside of the EEA within 5 years of the transfer. This is not applicable to a SIPP transfer.
  • Both a SIPP and ROPS does not force you to buy an annuity.
  • They both offer the ability to take benefits through drawdown or flexi-access.
  • They both allow you to hold your pension fund in any major currency of your choice.
  • They both can be managed by an independent financial adviser.
  • A SIPP has a lifetime allowance of £1,073,100 that increases by inflation unless you have lifetime allowance protection, whereas a ROPS has no lifetime allowance.
  • A SIPP is cheaper than a ROPS.
  • A SIPP is FCA regulated whereas a QROPS is regulated by either the MFSA or GFSC.

 

Taxation on UK Pensions and SIPPs

UK pensions are taxed as earned income in Spain. Non-residents are subject to UK income tax at source at the member’s marginal rate up to 45%. You have a few options which can be complex without the correct advice.

Spain’s DTA (Double Taxation Agreement) allows residents to obtain a NT tax code from HMRC to allow you to withdraw income from your pension without the deduction of UK tax at source. You can only receive an NT tax code if you have taken income from a pension before (not including your 25% PCLS which is free from UK tax at source anyway). You can also avoid paying emergency tax if you have a P45 dated the same year you request the payment – this can only be if you are receiving any other UK sources income for that year and live overseas. Should you not have an NT code or a P45 for that year, you have three options:

  • Option 1 – When you withdraw your 25% PCLS, also withdraw the minimum withdrawal amount of income from your pension at the same time. The pension will then be informed of your NT tax code/tax code which can then be used to avoid income tax being deducted at source for all future payments. This can take 2-3 months to obtain.
  • Option 2 – Withdraw the minimum amount of income and wait for your NT tax code before taking desired income/ad-hoc amount
  • Option 3 – Take a withdrawal and then claim the tax back from HMRC at the end of the year. It is your job to reclaim the tax with HMRC every year. If you are Spanish resident, you shall only be taxed in Spain as stated under the new double taxation agreement (DTA) that came into effect as of 1 January 2015. This means a claim can be made to HMRC so that no UK withholding tax applies.

 

Spanish tax law treats income from a UK Occupational Pension Scheme in a simple manner. The amount received is subject to income tax in Spain as earned income. Please refer above to the applicable income tax bands in Spain. Such pensions are not deemed as having a capital value, hence they are not subject to wealth tax nor are declarable under the M720 rules that require the declaration of foreign assets.

The Spanish tax law treats lump sum withdrawals, drawdowns and lifetime annuities all as earned income hence there is no tax-free element like in the UK. For this reason, if you are over 55 and considering moving to Spain from the UK, you should think about taking your lump sum in the UK before you move to avoid paying Spanish tax.

However, one exception does apply to the way lump sums are taxed. If the pension rights were acquired prior to 1 January 2007 through an occupational pension scheme, lump sums benefit from a reduction in tax of 30%. This relief ended in 2020. These rules are complex and need to be explained on a case by case basis. For this reason, it is important to speak to a tax specialist or to an independent financial adviser. CLICK HERE to get in touch with us and open up a free, no-obligation discussion about your own financial arrangements.

Example: For demonstration purposes only, we have assumed no other earned income in the tax year. Tax rates will increase at the appropriate tax band. Please refer to the income tax band rates above.

Contributions into the Pension Scheme:             €100,000

Value of fund on date of withdrawal:                   €150,000

Withdrawable amount:                                              €12,000

Taxable amount:                                                           €12,000

Amount of tax due                                                       €2,280 (tax rate of 19%)

Table C

UK pension death tax applies to UK pensions regardless where you are resident. This means if you die after the age of 75, your pension will be taxed at your beneficiary’s marginal rate on receipt up to 45%. It is taxed as earned income in the relevant year, which could be a significant amount. Death tax can be avoided should the beneficiary be resident outside of the UK. Should the beneficiary be resident in the UK then there are ways to reduce the income tax liability upon death.

Taxation on QROPS in Spain

The Spanish tax system definition of pensions exclude retirement schemes outside of Spain even if they received tax relief on contributions in the country of origin. For this reason, they could be treated as income from capital invested rather than earned income. Different accountants and tax advisers will argue differently regarding how QROPS are taxed which poses the argument about whether it’s worth taking the risk if we cannot be sure. Furthermore, the taxation is seen as potentially not on the amount received but rather on the profit element received as investment income tax. The Spanish system taxes retirement schemes in two separate ways:

  1. Plan de Pension – This is the equivalent to a UK Pension, i.e. Individuals are subject to Spanish tax relief on contributions into the scheme and income received is taxed as earned income.
  2. Plan de Jubilacion – A retirement savings scheme, such as an endowment savings plan in the UK, is subject to investment income tax on the profit element only.

Some argue that a QROPS is treated as a ‘Plan de Jubilacion’. The Spanish provider is required to calculate the profit element when making the withdrawal and issue an annual tax certificate to the member although this is often not the case and there have been many arguments against this theory. You may find it difficult to obtain this kind of information from a QROPS trustee as this falls outside of their day to day business. As with any tax legislation, the argument remains a grey area until tested in court. As the theory hasn’t been tested in court yet, it remains a risk to assume the tax treatment of a QROPS is treated this way.

Wealth tax applies to a QROPS as it can be cashed in at any time although this is subject to the scheme’s rules. QROPS should be regarded as personal assets and declarable and subject to Wealth tax via the M720 at the end of the year.

Example: For demonstration purposes only, we have assumed no other earned income in the tax year. Tax rates will increase at the appropriate tax band. Please refer to the income tax band rates above.

Contributions into the Pension Scheme:                           €100,000

Value of fund on date of withdrawal:                                €150,000

Withdrawable amount:                                                            €12,000

Taxable income:                                                                        €4,000 (Capital is €8,000 and gain €4,000)

Amount of tax due:                                                                  €760 (tax rate of 19%)

As you can see from the illustration above. QROPS is taxed very efficiently in Spain.

Table D

Death tax does not apply to QROPS, meaning 100% of your pension fund passes to your beneficiaries free of tax, although this can be avoided in most circumstances should the pension remain in the UK.

Problems with QROPS in Spain

As you may be aware, trusts can cause many problems in Spain, similar to most civil law jurisdictions. Most QROPS fall under a trust law framework hence are not completely ideal for some individuals in Spain. This is why it is extremely important to speak to one of our independent financial advisers before choosing a QROPS as it could seriously impact the amount of tax you will have to pay. CLICK HERE to get in touch.

Few QROPS providers have established schemes based on contract law which becomes friendly under Spanish law, although jurisdiction is extremely important when choosing a QROPS provider as Spain has an anti-abuse provision against any jurisdiction that is deemed to be a tax haven under Spanish law.

Furthermore, some providers invest the funds into a single premium insurance bond, commonly known as a ‘Spanish compliant bond’, which has been adopted under the Spanish system. The bond provider appoints a fiscal representative to file your tax returns annually with the Spanish tax office so you won’t need to file a M720.

There will be no ‘overseas transfer charge’ providing you remain an EEA resident for 5 years from date of transfer.

Transfers affected by the Overseas Transfer Charge

It is important to note that not all QROPS pension transfers will be subject to the new overseas transfer charge. However, if you request a transfer on or after the 9th March 2017 AND any of the following criteria apply to you, you will be required to pay 25% of the value of the transfer in advance:

  • You are not a tax resident in the EEA and the pension transfer is to a QROPS in a country other than your country of residence (i.e. if you are a tax resident in the UAE and your QROPS is in Malta).
  • You are a tax resident in the EEA and the pension transfer is to a QROPS outside of the EEA (e.g. you live in France and your QROPS is in Australia)
  • You (the member) have not provided all the required information before the transfer is complete
  • You requested your pension transfer before 9th March 2017, but it was not completed and the funds were then sent to a different QROPS which was not the scheme included in the original request.
  • When the transfer was requested you were either transferring your pension to a QROPS in your country of residence, or you were a tax resident in the EEA and transferring to a QROPS also in the EEA, however, within five years of the transfer your circumstances change such that you no longer meet the above criteria. For example, if you move outside the EEA or transfer your QROPS funds away from your country of residence.

Transfers not affected by the overseas transfer charges

If the following criteria apply to you, you will not be subject to the overseas transfer charge:

  • Your pension transfer is to a QROPS in the EEA and you are a tax resident within the EEA (i.e. any country within the EU, including Spain, plus Liechtenstein, Norway and Iceland and Gibraltar)
  • Your pension transfer is to a pension scheme in your country of residence (eg. if you are a tax resident in Australia and you transfer your pension to an Australian QROPS)
  • Transfers which are subject to unauthorised payments because they are not recognised transfers
  • You are a former employee of an international organisation that has set up a QROPS specifically to provide benefits for former employees
  • You are transferring to a QROPS which is an overseas public service pension scheme you are employed by an organisation participating in that pension scheme.
  • You are an employee of an organisation sponsoring an occupational pension which qualifies as a QROPS

 

*Please note: The information provided on this page is general information based on our understanding of the current Spanish tax legislation as of October 2020. Should any of the information be inaccurate or misleading, we take no responsibility for any reliance placed on it. We recommend that individuals always seek specialist advice before making any decisions.

Should I transfer to a SIPP or QROPS?

Should you wish to understand whether a transfer to a SIPP or QROPS would be in your interest and potentially which option would be better suited, please complete the form below and one of our specialist independent financial advisers will contact you to discuss further. Please note, there is no cost or obligation to take the call.

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