Pension tax in Spain

01When you become tax resident in Spain §

The main test is straightforward: more than 183 days in Spain within a calendar year makes you resident for tax. Days do not have to be consecutive, and short absences generally still count towards the total.

There are other tests as well. Spain can treat you as resident if your main centre of economic interests is here, and there is a presumption based on where your spouse and dependent children habitually live. So a couple who split their time carefully can still find that one of them is resident.

The consequence is the important part. Non-residents are taxed in Spain only on Spanish-source income. Residents are taxed on everything, worldwide — pensions, investment income, rental income from a property back home, the lot.

02Which country taxes your pension §

This is decided by the double taxation treaty between Spain and the country paying your pension, and treaties draw distinctions that surprise people.

• Government and civil service pensions — commonly taxable only in the country that pays them. Teachers, police, armed forces, civil servants and NHS staff frequently fall here, though the exact wording of your treaty governs.
• State pensions — treatment varies by treaty. Under the UK–Spain treaty, for example, the UK state pension is generally taxable in Spain once you are resident here.
• Private and occupational pensions — usually taxable where you are resident, so in Spain.
• Lump sums — the treatment of a tax-free lump sum at home is very often not tax-free in Spain. Taking it before you become resident, rather than after, can be one of the most valuable decisions in this whole process.

A treaty prevents you being taxed twice on the same income. It does not guarantee you pay the lower of the two rates. Someone moving from a country with a generous personal allowance to Spanish rates can pay more, and should know that before they sell a house.

03Other Spanish tax obligations for retirees §

• Modelo 720. An informational declaration of accounts, securities and property held outside Spain above a threshold per category. It is not a tax. It is a filing obligation, and historically the consequences of ignoring it were severe enough to reach the European courts.
• Wealth tax. Exists in some regions with allowances that include your main home, plus a state-level levy aimed at very large fortunes. Whether it touches you depends on where you live and what you own.
• Capital gains at home. Selling your former main residence after you become Spanish resident can expose the gain to Spanish tax. The order of “sell” and “move” is a genuine planning decision.
• Annual return. Residents file a Spanish income tax return. Even in a year where nothing is owed, the filing itself often still applies.

And to close a loop: the special expatriate regime known as the Beckham law requires employment in Spain and is not available to retirees. If a website has offered it to you as a retirement solution, treat everything else it says with the same caution.

04When to model your pension tax in Spain §

Model your position before you sell, before you take a lump sum and before you cross the 183-day line. Not after.

The exercise is not complicated for a tax adviser who does this every week: your pensions, your investments, your property, your dates, and the treaty. It produces a number. That number tells you whether to come, when to come, and in which tax year to do what.

We have met people who moved in October rather than January and paid for their whole relocation in the tax they saved. We have met others who did the reverse.

For a worked example with real numbers, see how much money you need to retire in Spain. It is included in our Settled package for exactly this reason. If you take nothing else from this site, take this: one hour, before you commit.