Are you thinking of retiring to Spain from the UK? If so, you might consider transferring your UK pension to a QROPS. Find out more!
What is a QROPS?
QROPS stands for Qualifying Recognised Overseas Pension Scheme. It is an overseas pension that meets certain requirements set by the HMRC, and is eligible to receive transfers from registered UK pension funds without incurring an unauthorised payment sanction.
Who is eligible for a QROPS in Spain?
Anyone currently residing in Spain or who can demonstrate clear intention to retire to Spain and make it their main country of residence for five years or more.
Can my pension be transferred to a QROPS if I decide to retire to Spain?
The following British pensions can be transferred to a QROPS:
- Former employers’ occupational schemes.
- Money purchase or defined contribution company schemes.
- Superannuation schemes.
- Final salary schemes or defined benefit schemes (as long as the payments have not commenced).
- Executive pension schemes.
- Self-invested personal pension schemes (SIPPS).
- Small self-administered schemes (SSAS).
- Schemes contracted out of SERPS (protected rights).
- Section 226 personal pension schemes.
- Section 32 pension transfers and personal pensions.
- Public sector service schemes (e.g. NHS, police, local government and civil service, armed forces and teachers).
The following British pensions cannot be transferred to a QROPS:
- Final salary schemes or defined benefit schemes under payment.
- British State pensions.
- Pensions for which an annuity has been purchased.
What are the advantages of a QROPS for my retirement in Spain?
When the holder of the QROPS has been resident in Spain (spending 183 days or more in Spain per tax year) for five complete and consecutive fiscal years, HMRC restrictions on how income and capital are spent no longer apply.
Residents in Spain are taxed on worldwide income; therefore all earnings have to be declared, regardless of where they come from. In Spain, the tax rate varies according to the yield type.
Depending on how a QROPS in Spain is implemented, the resulting income could fall into one of several yield categories. For example, if the income is categorised as pension payments (earned income), in Spain the tax levied could be between 20% and 47% for 2015, and from 19% to 45% from 2016 onwards.
If the income is considered to be capital gains, it would be subject to the following tax rates:
|€0 – €6,000||20%||19%|
|€6,000 – €50,000||22%||21%|
|more than € 50,000||24%||23%|
The rates above would also apply to income resulting from dividends and interest.
Income falling into the category of capital repayment would be tax-free.
Tax Allowances and Deductions
Tax allowances and deductions are available, whatever the income source. These are applicable prior to the above tax rates from the minimum taxable income threshold of €5,151. This threshold increases according to age and personal circumstances, such as incapacity.
Deductions are also available in certain situations, for example the cost of a main residence with a mortgage, and donations. Where applicable, these all reduce the final tax to pay.
QROPSs in Spain are exempt from UK Death Tax
Upon your death, all remaining assets will be passed on to your chosen beneficiaries, without being subject to British inheritance tax.
Is transfer to a QROPS in Spain subject to taxation?
Transfer to a QROPS for your retirement in Spain is not subject to tax unless it exceeds an individual’s lifetime allowance. In the UK, the lifetime allowance is currently set at £1.25 million (2014-2015 tax year). If your pension exceeds this amount, you would need to discuss your options with our tax experts at Andalucía Lawyers.