The latest figures from the British Embassy in Madrid suggest that are as many as 800,000 British expats living in Spain for all or part of the year. Of these, 75,000 are retired and have moved there permanently.
If you are a UK pension policyholder and have settled, or intend to settle, in Spain, you should consider transferring to a QROPS (Qualifying Recognised Overseas Pension Scheme).QROPS are pension vehicles approved by HM Revenue & Customs (HMRC) to facilitate the transfer of UK pensions overseas. A list of recognised schemes can be found on the HMRC website.
Since their introduction in 2006, QROPS have become increasingly popular with retired expats in Spain. They are also common with Spanish nationals who have worked in the UK for a period and then returned to Spain.
Significant benefits can be obtained from transferring your pension into a QROPS. It is important, however, to consider both the pros & cons:
Where a policyholder has been a non-UK resident for less than five full UK tax years, the QROPS provider must report to HMRC all payments made to the policyholder.
When a policyholder has been a non-UK resident for less than five full and consecutive tax years, the QROPS provider must report all pension payment distributions to HMRC. In the meantime, the QROPS is treated as if it is still a UK pension scheme by HMRC.
The QROPS provider must report all pension distributions to the Spanish tax authorities (Hacienda) for the first ten years of non-UK residency.
If you are a UK pension policyholder and have settled, or intend to settle, in Spain, you should consider transferring to a QROPS (Qualifying Recognised Overseas Pension Scheme).QROPS are pension vehicles approved by HM Revenue & Customs (HMRC) to facilitate the transfer of UK pensions overseas. A list of recognised schemes can be found on the HMRC website.
Since their introduction in 2006, QROPS have become increasingly popular with retired expats in Spain. They are also common with Spanish nationals who have worked in the UK for a period and then returned to Spain.
Significant benefits can be obtained from transferring your pension into a QROPS. It is important, however, to consider both the pros & cons:
There are several scenarios to consider should an individual die whilst living abroad:
The current lifetime allowance for Pension funds had been set at £1,073,100. Any amount transferred to a QROPS above this figure would be taxed in the UK at the marginal income tax rate.
The UK tax rate payable on pension savings above the lifetime allowance depends on how the money is paid to you. The tax rate is:
Spanish residents must report income from a QROPS on their annual tax return. However, by declaring the pension income as an annuity in Spain, it is possible to benefit from favourable tax treatment. To this end, the QROPS trustees supply Spanish tax residents with a certificate confirming that the income distributed from the pension fund is a “temporary annuity”. When personal allowances are considered, treating the pension income as a temporary annuity invariably becomes an attractive proposition for a Spanish tax resident.
If you receive your pension lump sum whilst resident in Spain, it will be taxable in Spain. For further information on how the proceeds of QROPS are taxed, please visit our page on Taxation in Spain.
Once a decision has been made to transfer your UK pension to a QROPS, the next thing to consider is which jurisdiction your scheme should be located in.
Unfortunately, Spanish law does not recognise trusts; however, such structures are preferred to receive/protect UK pension transfers. It is important, therefore, to look for alternatives. The most popular choice in terms of jurisdiction for those living in Spain is Malta.
Malta offers several distinct advantages to British expatriates in Spain:
These factors help simplify the transfer of UK pensions and the taxation of pension income. When an individual buys a QROPS, it is regarded as a Malta pension, not a Malta trust. The trust is an administration vehicle and is used as a way of protecting the policyholder’s rights. The duties of the trustees are thus important in terms of how they look after an individual’s affairs/invest money.