UK occupational and state pensions are taxed only in Spain. The state retirement pension is always paid gross but any other taxable pension will be taxed in the UK until the tax payer confirms that they are registered and paying tax in Spain. Pensions are taxed in Spain at the progressive scale rates under general income. There is an abatement of between €2,652 and €4,080 available against such income when calculating the taxable income.
In order to notify the UK tax authority that a tax payer is registered for and paying tax in Spain they should obtain a certificado de residencia fiscal NEN - España Convenio from the local tax office.
This certificate should then be sent to:
- HM Revenue & Customs at the Centre for Non-Residents
Fitz Roy House
PO Box 46
Tel: +44 151 210 2222 (if calling from outside the UK)
Tel: 0845 070 0040 (if calling from the UK)
The Spanish authorities will generally want the tax due on the UK pension to actually be paid for the first time (in May/June of the following year) before they will issue a certificado de residencia. This might not be until almost 18 months after have taken up Spanish residence. If this is the case, any PAYE tax deducted at source in the UK while actually resident in Spain is ultimately repaid.
Government service pensions (for example, civil service, local authority, fire service, police and most teachers) remain liable only to UK tax and are not taxable in Spain at all. Depending on how they are administered, NHS pensions may or may not belong to this category – if paid by a local authority, it may be a government service pension, but even then, for the purposes of the relevant double tax treaty, it may not be.
- For more information, please refer to HMRC's categorisation of government pensions (INTM343040), and consider contacting HMRC directly: Click here
If a government service pension is transferred to a private scheme, the pension will be taxable in Spain. It may be possible to transfer out before reaching the age of 59 or commencing receipt of the pension.
Annuities are taxed favourably in Spain as a proportion of the income is treated as non-taxable capital, and only the balance is subject to income tax. The taxable income element of the annuity is determined by applying a fixed percentage (between 40% and 8%) to the amount received, depending on the age of the beneficiary at the time the annuity vests. For example, a man under 40 years of age would have 40% of his annuity income taxed leaving the remaining 60% tax-free. For a man aged 70 or over 8% of his annuity income is taxable with the remaining 92% tax-free. Annuity income is taxed as savings income at 21% on the first €6,000 and 25% on income between €6,000 and €24,000 and then 27% on anything over €24,000.
The above tax treatment normally applies to annuities which have not been acquired as a result of inheritance, legacy or other means of succession, and where an employer has not contributed to fund.
For temporary annuities (an annuity over a set period of time) the relevant percentage applied to the income depends on the duration of the annuity; that is, for an annuity up to five years 12% is liable to Spanish tax leaving 88% exempt; for an annuity over 15 years 25% is taxed and 75% exempt.
The tax treatment of an annuity from a UK private pension is currently a grey area in Spain. This is because often in a private scheme the trustees have purchased an annuity on your behalf. If the pension is recorded on the self-assessment tax return in Spain as an annuity, it can be accepted as such, even though it was not purchased directly. If no claim is made for the annuity treatment, or the claim is not successful, the pension income will be taxed as general income at the progressive scale rates.
Pension lump sums are taxed in Spain if received while being a Spanish tax resident. A lump sum could be taken before becoming a tax resident of Spain or, if you believe you will qualify for the much reduced annuity taxation system, an option could be to commute the lump sum into higher pension income as this may be a better option. The taxable amount is calculated as the difference between the capital received and the contributions made and this will be taxed at 21% on the first €6,000 and 25% on income between €6,000 and €24,000 and then 27% on anything over €24,000.
Lottery Winnings and Premium Bonds
Winnings from the UK National Lottery or from UK premium bonds are taxed in Spain as general income.