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), which is still regulated in the UK and may have lower charges.

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? 

There are various rules you need to comply with in order to transfer your pension. Government form APSS 263 provides information on what you need to know before making a transfer.

You’ll need to download the form and send it to your UK pension provider.

HMRC will levy a 25% tax charge if you don’t provide all the information within 60 days of requesting the transfer.

What are the benefits of transferring your pension to Spain?

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

• A QROPS lets you invest your fund and take income in the currency of your choice. In contrast, if you retire abroad on a sterling-based pension, you expose your funds to currency fluctuations.
• A QROPS gives you access to investments from across the world, so you can create a personalised portfolio.

If you live abroad, you should get advice on tax rules on inheriting a pension. The tax rules are complicated and depend on your circumstances.

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 can access more investments via a QROPS, you are exposed to greater risk.
• You may have to pay additional tax charges if you make a withdrawal from a QROPS and return to live in the UK within 10 years.

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 a 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.