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Taxation of british pensioners in Spain

Taxation of british pensioners in Spain: British citizens applying for pensions while living in Spain: before and after Brexit implementation time.

It is hard to trivialise the issue of pensions for any British citizen interested in relocating to Spain. Besides the obvious attractions, such as a nicer climate and beautiful environments, the relatively lower costs of living make the country a much better option for pensioners than France or Italy. Indeed, as the nation’s property rapidly recovered from the crisis, Del Canto Chambers has advised British expats in acquiring assets in Spain. But securing a home is not everything. Current and future pensioners must be able to rely on a regular source of income to live in Spain and be able to travel back to the UK from time to time.

Can British citizens apply for pensions from Spain? Should they pay tax to British, or Spanish authorities? And what will happen after Brexit? Before entering the next stage in your life, it might be worth making sure that you understand how British pensions work for expats. Otherwise, you could face unexpected and costly procedures.

The basics: Successfully claiming British pensions from Spain

The first important issue is to clarify your income sources in your old age. In addition to a state pension, you might have access to work-based pensions or other special funds which you can claim in retirement. These can have diverse tax implications, particularly as a result of the differences between Spanish and British legislations.

First things clear: you must pay tax on your state pension depending on your tax residence. If you are planning on spending more than 183 days in the country, then you will have to pay corresponding taxes to Spain. Income tax rates have been fixed for some time, but they might change in the near future following the current economic crisis. Besides, if you did not spend the whole of your working life in a single country, you might have to arrange the recovery of pension rights gained across borders.

Before taking any uncertain steps, it might be worth checking with an expert legal advisor, particularly to find out if there are any exemptions or differences that apply across regions in the country, or because of special rules applied to certain occupations. An example are UK civil service pensions, which are always taxed in the UK. What about private pensions? Well, the key issue here is to understand the type of financial vehicle employed in each case. Some expats have even transferred their private pensions to third jurisdictions, such as Gibraltar or Malta. Plus, certain financial instruments are more liable than others in Spain. 

In short: sorting out tax planning early on can avoid pitfalls, and save you a lot of money!

Claiming your British pension from Spain and the Brexit uncertainty

Whatever you do with your private pension, your state pension can be claimed from abroad as long as you have made sufficient National Insurance contributions. Four months into the relevant period, you must contact the UK International Pension Centre to notify that you wish to get paid in Spain. They will make the appropriate arrangements, including informing you of currency rules, to ensure that you receive the pension in your Spanish account. Private pensions will have to be negotiated with the managing firm. In this case, you might be at risk of losing money if you do not take advice beforehand.

Moreover, Brexit is an important factor to take into account, as it adds further uncertainty to the ability for British expats to claim pensions from Spain. Currently, any British pensioner in the EU is guaranteed the triple lock uprate; this will apply for those who qualify as residents before December 2020. However, unless reciprocal agreements are negotiated with Spain, those who arrive from 2021 onward will not share this guarantee. Equally, those who have worked across borders will have a difficult time to add up their working years and qualify for their pension. For instance, a British expat who has worked 20 years in the UK and 25 in Spain today can claim the entirety of their pension rights in the final country of retirement. However, unless agreements are signed, this will not happen automatically after Brexit effectively begins in 2021.

Of course, all of these claims can comfortably be conducted online. However, to avoid language barriers and cultural differences getting in between, you should rely on experts that have settled international financial affairs for British expats in the past. Contacting experts in real estate and in taxes separately might not be enough for a favourable outcome. It is better to examine the whole picture. Indeed, lawyers at Del Canto Chambers have arranged fully compliant tax structures that have helped British pensioners save a lot of money.

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