Retirement Planning for Brits Already Living in Spain: Adapting to UK Budget Changes
- 55pluswellness
- Mar 24
- 5 min read
ALEXANDER PETER WEALTH MANAGEMENT
You’re reading a preview of the March/April 2025 issue of 55+ Wellness Magazine. For the full version, packed with even more insights, inspiration, and exclusive content, visit MA25
For British retirees already settled in Spain, the UK’s recent budget changes have introduced new challenges that may require a fresh approach to retirement planning. From the inclusion of pensions in UK inheritance tax (IHT) to rising capital gains tax rates, these changes could impact the financial strategies of expats enjoying life under the Spanish sun. Adapting your retirement plan to account for these developments is essential to maintain financial security and optimise your assets.
KEY UK BUDGET CHANGES AND THEIR IMPACT
INHERITANCE TAX ON PENSIONS:
Starting April 2027, pension funds will be included in the taxable estate for UK inheritance tax purposes. This change means pensions that were previously exempt will now be taxed at up to 40% when passed to heirs. This could significantly impact estate planning for British retirees with UK pension assets.
CAPITAL GAINS TAX INCREASES:
The rise in UK capital gains tax rates—10% to 18% for lower-rate taxpayers and 20% to 24% for higher-rate taxpayers—may affect expats who retain UK-based investments. Selling assets like property or shares could result in higher tax bills unless strategic planning is undertaken.
LEVERAGING SPAIN’S TAX ENVIRONMENT
Living in Spain offers British expats unique opportunities to optimise their retirement finances. Spain’s tax treaties and regional tax advantages can help mitigate the effects of UK tax changes:
1. DOUBLE TAXATION AGREEMENT
Spain’s double taxation agreement with the UK ensures expats aren’t taxed twice on the same income. While UK state pensions are taxed in the UK, other pensions—including private and workplace pensions—are generally taxed in Spain, often at more favourable rates.
However, it’s important to note that the UK’s 25% tax-free pension lump sum is fully taxable in Spain. If you’re considering withdrawing a lump sum, timing is critical to avoid unnecessary taxation.
2. INHERITANCE TAX IN SPAIN
While UK pensions may now be subject to IHT, Spain’s inheritance tax (known as Impuesto sobre Sucesiones y Donaciones) varies significantly by region. Many autonomous communities offer substantial exemptions for immediate family members, potentially reducing or even eliminating inheritance tax liabilities for your heirs.
3. CAPITAL GAINS ON INVESTMENTS
Spain’s capital gains tax rates are typically lower than the UK’s, especially for lower-income brackets. Relocating your investment portfolio to Spanish-approved structures, such as SICAVs or other tax-efficient vehicles, could reduce your overall tax burden.
RETIREMENT PLANNING STRATEGIES FOR EXPATS IN SPAIN
If you’re already enjoying your retirement in Spain, now is the time to review your financial plan and adapt to the evolving tax landscape.
1. REVIEW PENSION PLANS
With UK pensions becoming subject to inheritance tax, consider transferring your pension into a Qualifying Recognised Overseas Pension Scheme (QROPS). A QROPS allows greater flexibility and potential tax efficiencies, although recent rules impose a 25% Overseas Transfer Charge on some transfers. Seek advice to determine if this option suits your financial situation.
It is also worth noting that most private pensions benefit from a different tax regime in Spain which is far more favourable leading to more disposable retirement income, make sure you benefit from this if you have a private pension.
2. OPTIMISE ESTATE PLANNING
Take advantage of Spain’s regional inheritance tax exemptions to minimise liabilities for your heirs. Gifting assets during your lifetime or restructuring your estate to align with Spanish tax rules can help safeguard your family’s future.
3. REASSESS INVESTMENT PORTFOLIOS
If you still hold UK-based investments, consider the tax implications of retaining them. Transferring assets to Spain-based investment vehicles may reduce capital gains tax exposure while allowing you to benefit from Spanish tax reliefs.
4. CURRENCY RISK MANAGEMENT
With income often received in GBP and expenses paid in euros, fluctuations in exchange rates can impact your budget. Setting up a euro bank account or using currency exchange platforms with favourable rates can provide stability.
COMMON PITFALLS TO AVOID
1. OVERLOOKING WEALTH TAX OBLIGATIONS
Spain imposes a wealth tax on individuals with worldwide assets exceeding specific thresholds. The thresholds vary by region, and exemptions may apply. Ensure your assets are correctly assessed to avoid unexpected tax bills.
2. MISMANAGING RESIDENCY STATUS
If you spend over 183 days a year in Spain, you are considered a tax resident. Ensure you are registered as such and compliant with Spanish tax regulations to avoid penalties.
3. NEGLECTING TAX DEADLINES
Spanish tax deadlines differ from the UK’s, with annual tax returns typically due in June. Missing these deadlines can result in fines, so ensure your financial adviser or accountant keeps you informed.
THE BENEFITS OF REVISITING YOUR RETIREMENT PLAN
Adapting your retirement strategy in light of these changes ensures that your finances remain optimised while avoiding unnecessary tax liabilities. Spain’s tax environment, coupled with its high quality of life, continues to offer excellent opportunities for British retirees. By taking proactive steps, you can ensure your assets are structured efficiently and your retirement remains stress-free.
CONCLUSION
The UK’s latest budget changes underscore the importance of revisiting your financial plans as a British retiree living in Spain. From inheritance tax planning to optimising investment portfolios, tailoring your approach to the new tax landscape will ensure your retirement years are as secure and enjoyable as possible.
Professional advice is essential in navigating these complexities. With the right guidance, you can leverage Spain’s favourable tax conditions, protect your estate, and enjoy a financially secure retirement in one of the world’s most desirable locations.
Our advisers at Alexander Peter Wealth Management provide regulated advice as members of OpesFidelio – a trademarked network of the Aisa Group.
ABOUT ALEXANDER PETER WEALTH MANAGEMENT
Established in 2010, Alexander Peter Wealth Management provide specialist advice to British expats and international employees living around the world.
We provide tax-efficient and tax-compliant solutions for those who have decided to leave the UK and have found a new home overseas.
Paul Griffiths
Director of Europe
Paul is qualified to EU/UK level 4 standards with a Professional Diploma in Financial Advice (QFA) and the certificate of European Financial Advice.
Jeff White
Adviser
Originally qualified under the Chartered Institute of Banking, Jeff has attained the CISI Level 4 in Investment Advice.
For more information on this please contact us on +34 951 121 880 (between the hours of 8am and 6pm CET), or email enquiries@alexanderpeter.com
You’re reading a preview of the March/April 2025 issue of 55+ Wellness Magazine. For the full version, packed with even more insights, inspiration, and exclusive content, visit MA25
