Littleweed60

Hi,

I am planning a move to Spain in the next year relying mainly for income on drawdown from a SIPP (Self Invested Personal Pension). Can anyone advise how a SIPP is taxed for UK citizens resident in Spain? Specifically I'd like to establish whether it is recognized as a pension and consequently treated as earned income (as opposed to investment income)?

Many thanks

Dxf

Hola
Like all these things, you need expert advice from companies like Blevins Franks as there are always work arounds for the minor differences that occur in such plans - usual disclaimer, i have no connection with Blevins Franks except as a satisfied customer

Davexf

Loafing Along

Interesting summary which may serve as a guide but, as already commented, when significant amounts involved get professional advice
https://www.spenceclarke.com/article...not-a-pension/

snikpoh

I'm not an expert and certainly could be wrong but ....

I thought there was no difference between earned income taxation and savings income taxation in Spain. Can someone confirm please.

It's also my belief that private pensions are treated like normal income. Again, can anyone confirm please.

Barriej

I have income from a personal pension scheme (not a SIPP) which was mainly self contributed but the funds were moved to the company I worked for in the last 10 years.

This fund was invested in stocks and shares and property and when I retired in 2020 when we moved here I started drawing from it.
It is still invested but as a fixed fund.
I did my first returns this year.
Modelo 720 as the fund is more than €50,000 (you have to give a fund value at 31st Dec of the year before you submit the return).
If you have cash or other shares, property etc and any one of these is more than €50,000 these will have to be declared.

As to normal tax, any drawings from the fund are set as income and the remaining fund is just covered under the 720 although if there are trades during the year you have to include all increases from this as interest and unearned income (mine is held in a special wrapper that does not allow for trades of shares, except to meet the draw down each month). So I have no interest to add to my return.
'Winnings' from premium bonds have to be declared as they are interest. As do any from building societies etc.

The 720 is a one off as long as there are no gains or losses totalling more than €20,000 in one year (so if you are drawing more than €20,000 a year then you have to file this every year.)


You should however get some detailed information from a tax advisor here as to your exact situation. I have given you mine which is unique to me.

If you are a UK passport holder, remember to remove the 25% tax free amount in the year before you move (tax year here is 1st jan to 31st Dec) or you may (will be taxed) on it as there is no tax free allowance on pensions here.

Also if UK passport holder you will I suppose be coming here on the NLV and for that you will have to show an income of around €26,000 a year so your tax responsibilities will be higher than mine as we moved before Brexit..

Keithtoon

Very interesting reading, At the moment I am trying my best to learn abput "Temporary Annuitys" & "Spanish Compliant Bonds" they are both supposed to better for TAX purposes. Very difficult to find info on this at the moment.

Barriej

I started looking at moving the pension to Spain when we first moved over (as it was just before B day it would have been easy).

However I left it in the Uk, because you never know if we may end up back once there is only one of us and, with a son still in the UK. We would move back.
Also Im not sure we will stay in Spain for ever anyway, we have a daughter in Australia so we could go there.

Make sure that you have crossed all the T's before even considering moving any investment, just to save a few pennies in the short term..

Littleweed60

Thank you for posting this, a very interesting read. It looks like a Sipp will be treated as investment income rather than general/ earned income.

Littleweed60

I believe you are a right that the actual percentage tax rates are the same, the differences may lie in other areas;
- investment income can only be offset against the basic personal allowance, the general allowance of 2000 euros and the sliding scale allowance only apply to general /earned income.
- if a Sipp is treated as investment income then the tax paid will be on dividends and cgt on the profits on any sales.

Patrick2976

Be very careful when trying to use the temporary annuity process for QROPS income (which some do - and get away with) as this is definitely NOT an annuity, no matter what your accountant tells Hacienda - and this could end in an investigation/fine if the light shines upon you.

Patrick2976

There is a difference between earned income and CGT or Savings tax. They are similar in the lower bands but the max savings tax rate is 28% whereas the max personal income tax rate is 47%.

Notdunroamin

"As you may be aware, the Hacienda is doing an audit (going back to 2017), on residents who have been declaring pensions income as an annuity.

Well they have finally clarified what conditions a pension must fulfil to be classed as an annuity here in Spain, and having a statement from a UK provider stating it is an annuity is not enough…they must meet the following criteria:

The main one being that the annuity has a SURRENDER VALUE.

The information required by the Spanish tax authorities:

1) Date of contract and date of commencement of annuity income
2) Identification of you and the company
3) Contingencies covered
4) Redemption conditions and surrender value (must have a surrender value)
5) Duration, amount and form of benefits
6) Form of premium contributions – periodic or single payment

If the tax office contacts a client they have TEN DAYS to present the information and lodge an appeal. To appeal against this decision, the client must produce a certificate from each company with the above six details (but specifically with the Surrender Value).

Christina Brady – Blacktower Financial Management"

On the basis of the above at I don't believe even genuine UK annuities, the vast majority of which will be non redeemable, (if indeed there is such a thing as a redeemable UK annuity at all) should be declarable as annuities.

Patrick2976

Some pension trustees (Trireme for one) have created a separate life company which holds a certain % of the pension in cash - creating an 'annuity' whereby they are duty bound in law to pay the policy holder an agreed amount over a period of time. This could mitigate a lot of counter arguments but I still wouldn't want to rely on it in a Spanish court.

PoloMarco

Appreciate this part of the thread is 18 months old…

I just read that article https://www.spenceclarke.com/article...not-a-pension/ and it does indeed state that SIPP and private pensions are taxed as savings/investments I assume similar to a S&S ISA. I guess the devil is in the detail as my previous understanding was that they were taxed as income like other pensions. Therefore it seems the only types of UK pension taxed in Spain as income are State Pension, Government pension, and employer probably a Defined Benefit/Final Salary pension.

EDIT: Almost word for word duplicate article here https://sjb-global.com/understanding...ions-in-spain/ so take your pick

Fred James

This suggestion that qualifying annuities must have a surrender value is, in my opinion, seriously questionable. Both the links in the above post do not mention this, and in one of them point out that Blacktower are not tax experts. I have an annuity and have claimed the lower tax rates for 23 years and not been challenged on it by Hacienda, despite a detailed tax investigation. My understanding, based on what the tax manual says, is that for an annuity to qualify, it must have been bought by the annuitant from his own capital, either as a lump sum or by regular contributions. It does not qualify if a third party, such as an employer, contributed to it.

I checked what Spanish banks say about their annuity offerings. No mention of surrender values and a lot of information about the special tax benefits.

https://www.bancosantander.es/glosar...tas-vitalicias
https://www.bbva.es/finanzas-vistazo...italicias.html