Retiring in Spain with a UK State Pension – How does it work?
By Chris Burke
This article is published on: 7th March 2016

Many people understand that the UK is in the EU (for now at least) and therefore when you retire, it should be simple to understand how you claim your State and personal pensions. The main questions people have are what pension will you receive, how will you receive this, where should you be paying your taxes and how when retired, can you receive your pension in Euros and what could happen if you don’t have this organised correctly?
Over the last few years this has changed and, as of now, works in the following way.
Never worked in Spain but retiring here
In this scenario, having never paid Spanish taxes you will receive the UK State pension by contacting the HMRC on the following links:
How to check what State pension you have
www.gov.uk/check-state-pension
How the State Pension works
How the new state pension will work
How to claim your state pension online
www.gov.uk/claim-state-pension-online
Early retirement and State Pension
www.gov.uk/early-retirement-pension
You will be able to find out exactly what you will be entitled to and how it works. UK State pensions are always paid gross and never taxed, it is your duty to report this in your annual earnings whichever country you are resident in and along with your income, pay the relevant tax. State pension does come under the tax bracket as income tax.
www.gov.uk/tax-uk-income-live-abroad
You can choose to have your UK State pension paid into a UK bank account in sterling, or into a Spanish account in Euros at the rate of exchange that day (i.e. almost no costs for doing this).
If you have a private or company pension scheme in the UK, you should register on the following link and make sure this is also paid gross to you:
Then, you should be declaring this income in your annual tax return here in Spain (Declaracion De La Renta) and pay the relevant taxes, it’s advisable to find a good gestor to guide you.
A word of note here, unlike in the UK where your accountant/tax advisor is accountable for the advice they give you, here in Spain YOU are liable, even if the advice you are given is wrong. This stems back from Spanish culture, which you may remember when you learnt Spanish that they say in essence ‘The pen fell from my hand’ whereas in English we would say “Oops, I dropped the pen”.
Worked in Spain & the UK, Retiring here
In this scenario, as the UK is part of the EU, you should approach the local tax office in Spain and inform them of your situation. They in turn, would then contact the other countries you have worked in and where you paid tax and National Insurance contributions. This would then be paid to you by them directly as they collect from the relevant countries.
Different countries have different ages that they start paying your State pension from, so you need to bear that in mind.
Failure to correctly declare your pension income
What if you are or planning to be a resident here in Spain, but collect your UK state and private pension directly from the UK and do not declare here and in essence pay no taxes here? Surely, as the UK and Spain have a Double Tax Treaty (DDT, which means that you will not pay tax twice on any income you receive) as long as you are paying tax somewhere it’s not a problem? Well, consider that you are living in Spain as a resident, using their services, taking advantage of the healthcare and all the other things that make living here so enjoyable. Yet, you are paying UK taxes even though you are not living there. As you can see this doesn’t seem right! And it isn’t! Therefore, if you are found declaring your income incorrectly, it could result in you being fined, maybe even substantially. What is more, there is usually a minimal difference in the tax you might pay, whether it be in the UK or here, depending on your situation and income.
Also, give the fact that WILLS have now changed as of last August, meaning in essence you can choose which jurisdiction (country, laws) your estate would apply to, there seems little reason to risk this and not declare and pay your taxes as they should be. It would certainly stop a nasty knock at the door at some point down the road, especially as of next year when Common Reporting Standards come into rule (CRS – where countries around the world will be sharing information on the finances of their passport holders) meaning it’s even more likely you could be ‘found out’. Please note, this does not change where you are taxed for succession issues.
Therefore, we recommend making sure you are doing things properly, whether this involves you declaring this yourself or through a gestor, as well as making sure your WILL is up to date.
Spectrum sponsors the NADFAS event in Costa del Sol
By Charles Hutchinson
This article is published on: 24th February 2016

The Spectrum IFA Group co-sponsored an excellent NADFAS (National Association of Decorative & Fine Arts Societies) lecture on 17th February at the San Roque Golf & Country Club on the Costa del Sol. The Spectrum IFA Group was represented by our local adviser, Charles Hutchinson, assisted by his wife Rhona who attended along with our co-sponsors Ignacio Ortega & Tricia Anderson from Currencies Direct.
The National Association of Decorative & Fine Arts Societies is a leading arts charity which opens up the world of the arts through a network of local societies and national events.
With inspiring monthly lectures given by some of the country’s top experts, together with days of special interest, educational visits and cultural holidays, NADFAS is a great way to learn, have fun and make new and lasting friendships.
At this particular event, over 100 attendees were entertained by a fascinating talk on Indian Textiles Art & Design by Jasleen Kandhari, Head of Department, Oxford University.
The talk was followed by a drinks reception which included a free raffle for prizes including CH produced Champagne and a coffee table glossy book on Indian Fabric Design. Currencies Direct also supplied a presentation box of Cognac and Chocolates and desk diaries.
All in all, a good turnout and a very successful event at a wonderful venue. The Spectrum IFA Group were very proud to be involved with such a fantastic organisation and we shall also be sponsoring next month’s event on the subject of Fabergé’s Imperial Easter Eggs from the Russian court.
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Why a Pension audit is vital for your wealth. (Part 2)
By David Hattersley
This article is published on: 2nd December 2015

In the previous article, I referred primarily to Pre-Retirement Planning. This article is devoted to Post-Retirement Planning ie. when you are already drawing your pension and are tax resident in Spain. For those that are lucky enough to be in receipt of a Defined Benefits Scheme (ie Civil Service / Company Final Salary Pension) most of this article will not apply to you. The same applies to those taking income from a SIPP/ Drawdown plan. This will be covered in a future article.
Primarily this article deals with “Money Purchase Arrangements” ie. Group or Personal Pensions, Stakeholder Pensions and Contracting Out of SERPs, where benefits are being taken and the tax free lump sum has been paid.
It is important to understand the taxation of income in Spain. Unlike the UK, “Earned Income” and “Capital Gains and Investment Income” are not added together to determine the highest rate of tax payable. They are kept separate with “Earned Income” taxed at the highest marginal rate, and “Capital Gains and Investment Income” capped at rates of between 20%, 22% and 24% for the tax year 2015. When one considers a person that has a State Basic Pension of £8,000 p.a. and Earned Pension Income of £12,000 (with the current rate of exchange of 1.4) it is quite easy to slip into the next highest rate of marginal tax of 31% for “Earned Income”.
One also needs to consider the rules for Lifetime Annuities by the Spanish Law “Renta Vitalicia” and its subsequent tax treatment of said income.
So why the need for a Pension audit when one is already receiving it and declaring it to the Hacienda? Are you paying too much tax as a result of the word Pension?
So does this apply to you? Possibly, and the likely reason why, is that your pension provider at retirement converted your pension to an annuity. You may have taken all the pension pots, used an open market option and transferred this to another annuity provider that offered better rates?
It is also vital to understand both the documentation sent by the UK provider on an annual basis and the treatment of pensions and annuities by the UK HMRC. Unlike the Spanish, the UK HMRC treats both pensions and annuities as one, and they are taxed under income tax rules. It is vital that this is understood. Even if you have previously informed the provider that you are living in Spain and are receiving your pension gross, due to UK HMRC rules, you will still receive a “P60 End of Year Certificate” from the provider. This clearly states under the heading “Pension and Income Tax details”.
In these cases you could be paying too much tax without realising it! As an honest citizen, one presents the P60, without having the original policy document translated into Spanish, to your local Abagado / Gestor, who in turn presents the documentation to the Hacienda. It is hard enough for them to fully understand English, let alone the tax laws relating to the UK re. pensions and how they differ to Spain. The same could be said if one is receiving advice from a UK based adviser or an “Offshore Adviser”, who are very unlikely to understand or be able to assist with the complexities of Spanish Tax law.
And the reason for this is that Spain’s tax rules treat the purchase of a Lifetime Annuity as “Investment Income” even when a “Pension Pot” is used. The full income tax law is LEY35/2006 de 28 de noviembre, del Impuesto sobre la Renta de las Personas Físicas (LEY IRPF) The specific part relating to the taxation of Annuities is found in Articulo 23 as follows:
- The taxation of lifetime annuities– Articulo 25.3 a) 2º LEY IRPF
- The taxation of temporary annuities – Articulo 25.3 a). 3º LEY IRPF
Instead of being taxed on the full income amount, a discount is applied based on the age of the recipient when the original annuity was purchased. So for someone between the ages of 60 to 65 at the time of purchase, this represents 76%. Therefore referring to the above example the taxable “Investment Income” is only £12,000 x 24% = £2,800. The £2,800 will then be subject to the lowest “Investment Income” rate of 20% (assuming no other income) ie. tax payable of £576 p.a. A very substantial saving when compared against being taxed under “Earned Income” rules. For ease, I have not calculated the rate applied if one moves into the next highest rates of marginal tax!
I have come across a number of clients in this exact situation and I am in the process of correcting this error. Already one client has had a rebate, backdated 4 years (due to the statute of limitations) and now pays substantially less tax as a result. But it is both time consuming and hard work having to track down the likes of Pearl, Equity and Law, Equitable Life, Commercial Union, Scottish Equitable, Sun Life, Clerical Medical and Eagle Star (to name but a few) who were the major providers of pensions in the 80’s and 90’s, and then confirm it was a Lifetime Annuity that was purchased.
This is further complicated by those in Final Salary Schemes like the Teachers Superannuation Scheme, who at the same time contributed to the Group AVC, and considers that the pension income comes from one source. There is the possibility that the AVC under a default process purchased an Annuity offered by the same provider.
This is a service provided for existing clients, although at some stage they will need an official translator to translate the documents into Spanish if the UK provider will not do so.
In some instances though, either because of a lack of understanding by 3rd parties ie. the Hacienda or a Gestor, some people are claiming their pension income from a QROP/ SIPP as a temporary annuity whilst still retaining control over the investment and have not actually used cash to purchase an annuity ie it is still a pension in drawdown.
This is incorrect and will be explained why in a later article. Further articles will also include “The Treatment of Small Pension Pots”, “Pensions Flexibility” and “Pensions in Drawdown”. What I have learned time and time again over the course of many years experience in the pensions industry is that the “Devil is always in the detail” and why a pensions audit is vital.
As Financial Advisers we are not professional tax advisers, but we work closely with said professionals, and in this instance the tax advice has been provided by HCS Accounting of Denia
How much have your savings increased in the last 12 months?
By John Hayward
This article is published on: 26th November 2015

How much have your savings increased in the last 12 months?
Which of the following reflects where your money has been?
Savings account +0.5% to 2% (before tax)*
FTSE100 -3.17% (before charges and after dividends)*
Cautious fund +4.3% to 5.5% (after charges)*
With interest rates predicted to stay low for some time to come, many in Spain are finding it difficult to grow their savings, or increase their income, without having to take risks they would not normally do, risking their capital.
So what are the options?
Deposit account
There are Spanish savings accounts offering around 2% although in reality this could be the rate for the first few months which will then reduce to a much lower rate. There are often restrictions on how much you can invest in these accounts. Inflation is running at a higher rate than most savings accounts and so, in real terms, most people are losing money in what they see as a risk free account.
Stockmarket
Over the long term, through growth and dividends, it is possible to make significant gains. However, first-hand knowledge, or a lot of luck, is required to make the most of stocks and shares. Most people tend to have neither. In addition, most people are not prepared to take the rollercoaster ride that stocks and shares tend to produce.
Structured Notes
These are, generally, complicated and inflexible products which are really only suitable for experienced investors. The gains can be based on a variety of things but often requiring 5 to 6 years before seeing any return.
Property
Over time, property has proven itself to be a winner. However, it has also proven that it can suffer massive reductions. It is also probably the most illiquid asset you can hold as well as potentially, the most costly to hold in terms of upfront costs, taxes and maintenance. There can also be emotional risk.
Under the mattress
This is often mooted as a home for money in times of uncertainty but then there is the risk that it could go up in flames or end up in a burglar’s swag bag.
The solution?
As financial planning advisers, we are in a position to offer the best of all worlds; the potential for growth in a low risk environment. By Investing in a Spanish compliant insurance bond, with a company that is one of the strongest in Europe, holding a variety of assets, including shares, bonds, cash and property (but not the mattress), one can achieve steady growth. There is also the facility to take regular income. Your money can grow tax free within the bond until money is withdrawn. Even withdrawals are taxed favourably. Two potential advantages; higher growth and lower taxes. Perfect!
* Source: Financial Express (12 months to 23/11/15)
Automatic Exchange of Information (AEI)
By John Hayward
This article is published on: 11th November 2015

Did you know that recently, approximately 100 countries have signed up to a new initiative by the OECD’s updated Common Reporting Standard (CRS) whereby a global information-sharing system is to be put in place amongst individual tax authorities. This means that information on taxpayers with offshore assets will be shared between the participating countries.
This transparency is meant to be a deterrent to taxpayers’ using offshore accounts and assets as a means of avoiding domestic tax. The participating countries are committed to applying this procedure in order to tackle tax evasion.
This “automatic exchange of financial account information” (AEI) will commence from 2017 on an annual basis between participating countries and is set to become the most comprehensive and powerful tool to date used by worldwide tax authorities.
The first AEI of 2017 will relate to all account information of 1st January 2016 and reporting will involve individuals who own or control accounts either directly or via financial institutions, be it banks, brokers, investment vehicles, insurance companies or other financial organisations.
The Automatic Exchange of Information (AEI) is facilitated by having financial institutions in each participating country reporting relevant information regarding clients, who are resident in another participating country, to their local tax authorities. Local tax authorities will then automatically exchange this information with their counterparts in other participating countries on an annual basis.
The account information generally includes account number, balance and gross earnings in respect of any payments through the account including any investment income, income earned from assets etc. The information on each person generally includes name, address, country of residence, nationality, national insurance and tax identification numbers, place and date of birth.
So if you live in Spain and have overseas assets and/or investments that you previously thought were non-declarable to the Spanish authorities, then this may be something that you need to address.