Can I transfer my UK pension to Spain?

Around 300,000 UK expats live in Spain, making it one of the most popular places for Brits to spend their golden years.

If you’re thinking of retiring in Spain, you’ll need to know how transfer your UK pension. We explore what to expect when transferring your pension.

Transferring to other countries: Portugal | India | Canada | New Zealand | Malta | Australia

What is a QROPS?

A Qualifying Recognised Overseas Pension Scheme (QROPS) allows UK expats to transfer their pensions overseas. 

All QROPS must appear on HMRC’s list of approved schemes.

If you choose a scheme that’s not listed, your UK provider may refuse to make the transfer and you might face substantial tax penalties. 

For funds of over £150,000, QROPS are becoming increasingly popular.

However, there are other options, including an international self-invested personal pension (SIPP) that might be more suitable for smaller sums, due to the fees involved. 

From 6 April 2024, any amount transferred to a QROPS will be tested against the overseas transfer allowance (OTA), which is set at £1,073,100 (or a higher protected amount, if applicable).

If the transfer exceeds this allowance, a 25% overseas transfer charge may apply to the excess amount.

Since Spain is within the European Economic Area (EEA), no overseas transfer charge would apply for a transfer to a Spanish QROPS, provided the QROPS is compliant with HMRC’s rules.

Choosing a QROPS to transfer your UK pension to Spain can offer you more flexibility with your investments, but it’s vital to understand the country’s legislation and tax implications. 

So, it’s wise to seek FCA-regulated financial advice before transferring your pension.

What are the rules for transferring your pension to Spain? 

To move your UK pension to a Spanish QROPS, there are regulations that must be met. 

Here are the key rules: 

• The International Pension Centre, or Northern Ireland Pension Centre (if this is where you’re moving from) must be informed. 
• Your scheme must conform to the definition in the HMRC’s Pension Tax Manual. 
• Your scheme must be an overseas pension created outside the UK and meet the regulations test by being taxed as an occupational scheme in another country. 
• Your scheme must be a Recognised Overseas Pension Scheme (ROPS). 
• It must pass a benefits tax relief test. 
• Tax treatment applies to residents and non-residents. 

• Benefits are payable from the age of 55, except in the case of illness. 

What are the benefits of transferring your pension to Spain?

If you choose a QROPS for your UK pension transfer, there are many benefits: 

• A tax-free lump sum: You can take out a 25% lump sum tax-free from your pension in the UK. QROPS legislation also allows you to withdraw up to 25% of your pension free from UK tax when you retire, but the Spanish authorities will likely tax this. 
• Decide how to take your retirement income: You can access 100% of your UK pension after 55, but it’s best not to withdraw it in full, as this could attract higher taxes. So, it might be worth drawing income when you need it. It’s worth getting financial advice to determine the most tax efficient way of accessing your pension.  
• No annuities: If you transfer your pension into a QROPS, you won’t have to purchase an annuity. So, you can select investments that match your needs and risk appetite. 
• Choose your currency: If you retire abroad on a sterling-based pension, you expose your funds to currency fluctuations. A QROPS lets you invest your fund and take income in the currency of your choice. 
• Many investment options: A QROPS gives you access to investments from across the world, so you can create a personalised portfolio. 
• UK inheritance tax: Assets held in a QROPS are seen as outside your estate by UK inheritance tax regulations. So, if you die while living in Spain, your full pension goes to your loved ones. 

As an expatriate resident of Spain, you need to be aware that succession tax is levied when you die.

It’s worth getting independent financial advice to help prepare for this.  

What are the disadvantages of transferring your UK pension to Spain?

There are many disadvantages for anyone taking their pension out of the UK. 

• You relinquish any guaranteed retirement and death benefits attached to a defined benefit (DB) pension. 
• You will lose the protection given by the UK Pension Protection Fund to DB schemes. 
• You take on the running costs paid by your existing DB scheme. 
• You might have to pay higher fees than those levied by a defined contribution (DC) scheme.
• While you have access to more investments via a QROPS, you are exposed to greater risk.
• If you are a Spanish tax resident, a 2021 ruling imposes an income tax of 46%-54% on the entire fund when transferring a UK pension to a QROPS within the EEA unless it’s a Spanish or EU contract. Non-residents can still transfer to a QROPS without this tax.

It’s a good idea to get guidance from an independent financial adviser before transferring your pension.  

Can I still get my state pension?

You are still entitled to your UK state pension if you retire in Spain, provided you have made sufficient National Insurance payments and are of retirement age. 

As the country is in the European Economic Area (EEA), it will increase in line with any rises in the UK. 

How do you transfer your pension to Spain? 

To transfer your UK pension into a Spanish QROPS, follow these steps although financial advice is wide before starting the process. 

Are you eligible? 

Ensure that your pension meets the criteria for a QROPS and that the Spanish QROPS is a registered scheme that meets HMRC’s criteria. 

Select your QROPS provider 

Make sure you find a reputable provider and consider pension fees and investment options when making your choice. 

Tell your UK pension provider 

You must let your UK pension provider know that you are moving to Spain and want to transfer your pension to a QROPS. They will then send you everything you need to fill out.  

Complete and submit the transfer forms 

You should complete the transfer forms sent by your UK pension provider and QROPS provider in Spain.

Make sure everything is accurate and include any supporting information that’s requested. 

Then submit the completed forms to both providers. Your UK provider will transfer your pension to the QROPS in Spain, subject to approval by HMRC  

What other financial issues should you consider when moving to Spain?

Transferring your pension isn’t the only thing you need to sort before retiring in Spain.  

• Your new property: How will you finance your new home – with a mortgage, from savings or through the sale of your UK property? If you’re taking out a mortgage, contact a broker to work out exactly what you can borrow, so you’ll be ready to buy your new home. 

• Address your tax affairs: HMRC must be informed about any changes in your circumstances. A financial adviser can help you notify HMRC, clarify tax liabilities and advise you on making the most of your pension.
• Inheritance: As soon as you own new home, writing a new will in Spain is vital.   
• Buy insurance: Find a reputable insurance provider to make sure your property and any vehicles are covered and consider private medical insurance. 
• Open a Spanish bank account: It’s a good idea to open a Spanish bank account, so you can transfer funds before you move. Make sure you have several forms of ID ready.  

You’ll need a healthy contingency fund to pay for flights, hotels and car hire, so you can afford to do house viewings in person. 

If you follow the transfer process and get professional advice, transferring your UK pension to Spain shouldn’t be too tricky.

While tax rates in Spain aren’t especially low, the cost of living is significantly lower than the UK. 

With your income properly secured in an approved QROPS, you should be able to enjoy your retirement.

Get expert financial advice

Transferring your UK pension to Spain can be a complex process with important tax implications and financial considerations. However, with the right planning and professional advice, you can navigate these challenges, secure your retirement income, and make the most of your new life in Spain.

Consider the benefits and risks carefully to ensure your financial future is well protected as you enjoy your retirement in the sun.

Unbiased can match you with a financial adviser for expert financial advice on transferring your UK pension to Spain, managing tax implications, and optimising your retirement income to suit your new life abroad.