How Much Tax Will I Pay On My Pension In Spain?
Special Residency Regime for Expats Relocated by an Employer – Expatriates who relocate to work in Spain may qualify for a special regime in which they can choose between being subject to income tax as a resident or instead be subject to income tax as a non-resident for the year they move to Spain and the next five years.
How much are pensions taxed in Spain?
Taxes on pensions in Spain – Pensions in Spain are taxed at progressive rates between 8-40%. Contributions made towards Spanish pensions are tax-deductible. Tax benefits are also available through private third-pillar pension plans known as Ahorro 5. These allow savings up to €5,000 that can be claimed after five years onward; there is a guarantee of 85% and no taxes before five years.
How much can a pensioner earn before paying tax in Spain?
Lump sum draw downs/withdrawals – One of the most important differences in tax treatment is where a jurisdiction allows a tax free lump sum withdrawal from a pension scheme, as exists in the UK tax system. This tax exemption does not work in Spain. If the scheme is not a retirement savings scheme, i.
is treated as a pension by the Spanish system, then drawing the tax free lump some should be done before becoming tax resident in Spain. If the scheme is not defined as a pension scheme by Spain then the same applies but the problem is much less because retirement savings schemes enjoy a much better tax treatment in Spain.
For a retirement savings scheme, to work out how much taxable income applies to a withdrawal, you need to calculate the difference between the amount originally invested in the scheme and compare this with the amount withdrawn and the value of the scheme at the time of the withdrawal, all amounts being calculated in historic Euros. The tax rates and bands are:
- 19% 0€ – 6. 000€
- 21% 6. 000€ – 50. 000€
- 23% 50. 000€ – 200. 000€
- 26% over 200. 000€
This treatment also applies where funds have been transferred into a Spanish compliant investment bond, often recommended when a person moves to Spain. These compliant bonds greatly simplify administration because the insurance company calculates what tax has to be paid and deducts this at source, providing the bondholder with details of what to declare in the annual income tax return.
How much tax will I pay on my UK state pension in Spain?
Why You Should Transfer UK Pensions Under QROPS Regime – UK-based pensions are subject to the 45% lump sum tax under UK inheritance tax. However, if you’re wondering ‘Do I pay tax on my UK pension in Spain?’: Under the DTA, tax on UK pensions for expats in Spain will not be taxable in the UK as income, but it will be subject to Spanish income tax at rates up to 53%.
Transferring your UK pension to Malta or Gibraltar will protect your pension from the 45% tax on lump sum payments as long as you have not been a resident of the UK for at least 5 years when you receive the payment.
Payments will still be subject to Spanish income tax after transfer to either country. Because of the Double Tax Agreement in Malta, pension payments will not be subject to Malta income tax. However, pensions transferred to Gibraltar will be subject to a 2.
5% tax on income (although foreign tax credits are granted in Spain). Even if you are being taxed under the special Spanish residency regime and your pension payments are untaxed, you may still want to transfer your pension under QROPS in Spain.
Your pension will still be at risk of the 45% lump sum payment death charge if it remains in the UK. The information contained is based on current legislation which is subject to change.
How can I avoid paying taxes in Spain?
How is an annuity taxed in Spain?
For temporary annuities (an annuity paid over a set period of time) the relevant percentage applied to the income depends on the duration of the annuity i. 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.