QROPS Spain debacle hits expatriates where it hurts – retirement

Be aware of the this debacle that has affected thousands. Keep your pension safe. Many Spanish expats have been offered offshore insurance bonds for their investments and pensions. Now they are paying the penalty.

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No tax advantage by moving your pension offshore

Offshore advisers are constantly promoting QROPS without referring to the UK and Spain Double Tax Treaty. Don’t get caught out!

Retiring To Spain

Spain Tax For Expats

Do you want to know more about Spain tax for expats? If you have retired or are retiring to Spain, and-
  • have a BRITISH pension
  • own a QROPS (Spain)
  • have been advised to take out an Investment Bond
  • wish to receive high quality investment advice taking into account Double Tax Treaties

then we are able to assist you.

If you live in Spain, tax for expats will likely be a key consideration. Additionally, if you are retiring to Spain you may have other common issues and concerns that we can assist with. Below is some general Spain-specific information that you may find useful. We also blog regularly on the latest matters affecting you.

Within these pages we focus on the main Spain tax for expat considerations for British pensions and investments connected with expats. We have the insider knowledge to discuss specific investment strategies, including pros and cons of investment bonds, SIPP and QROPS .


There were 306,000 UK-born people with residency in Spain in 2015, according to the European statistics agency Eurostat, which used figures reported by Spanish authorities. Of these, around one-third of them receive the UK state pension.

For expats that need advice on pensions and investments, the investment regulator is here www.cnmv.es

For those that need advice on insurance, whether that be car insurance, health insurance or life insurance, the insurance regulator is here www.dgsfp.mineco.es

Aisa Group is registered for both insurance and investment advice for expats resident in Spain.

Spanish Specific Pension Information

Pensions for ExpatsKEY POINT:
Trusts - The Spanish do not recognise trusts and could well look through a trust structure and tax it accordingly.

Pensions for ExpatsKEY POINT:
Pensions - the lump sum from a UK pension (or a pension anywhere outside of Spain) is taxable and should be declared to the Hacienda.

Pension Income - This is taxed as normal income unless deemed to be a temporary annuity. However, simply claiming a pension in drawdown is a ‘temporary annuity’ may be challenged by the Hacienda. Always take local tax advice before drawing on a pension while resident in Spain.

  1. Proceeds from pension plans received by Spanish residents are specifically classified as salary income (“rendimientos del trabajo”), subject, in all cases, to Personal Income Tax within the General Tax Base. The taxable base is the full amount of the benefit and the tax rate applicable is the general progressive rate scale, and not the more favourable special tax rate for savings income.
  2. Pension funds, although not having a separate legal personality, are taxpayers under the Corporate Income Tax, but at a zero rate.
  3. Finally, the consolidated rights of the beneficiaries under a Spanish pension plan are exempted from Spanish Wealth Tax.

Spanish Tax considerations

Spain does not recognise insurance bonds if not Spanish Compliant.  There is a suggestion that the sale of non-compliant insurance bonds (whether outside a pension or not) is not legal and this is about to be tested in the Spanish Courts.

Pensions for ExpatsKEY POINT:
Trusts - The Spanish do not recognise trusts and could well look through a trust structure and tax it accordingly.

Pensions for ExpatsKEY POINT: For those expats who were advised to take out a trust in the UK and put the investment into an Investment Bond for tax efficiency reasons – you must review this arrangement through a combined UK and Spanish wealth adviser who has Inheritance Tax specialities (such as ourselves).

Expats need to be aware of Modelo 720 and Spanish residents with foreign assets or income in any of the following categories exceeding 50,000 Euros must declare:

• Accounts in any kind of financial institution e.g. banks, building societies.
• Investments / rights of representation in foreign companies or other entities.
• Investments in foreign collective investment institutions (e.g. unit trusts).
• Foreign life / invalidity insurance; income from foreign annuities.
• Property and rights to property.

Pensions for ExpatsKEY POINT:
The threshold is for the total value of each of the three categories.

Where assets are jointly held (e.g. with a spouse), it is the total value of the asset which is relevant. A separate return must be submitted for each person.

For more information go to our Tax Hub

Spanish specific Investment Strategies

There is a saying ‘Don’t let the tax tail wag the investment dog’. Investors should be interested in the best strategy to get the highest net return after tax AND fees.

Pensions for ExpatsKEY POINT: If the fees for a tax strategy are higher than the tax saved, then it would be sensible to look at taxed option with lower fees. When we review existing products often recommended in Spain, we discover in 95% of cases that the clients would have been better off not taking out the supposedly “tax-efficient” investment bond!

The adviser should look at alternative strategies, suggest options to discuss with you, finalizing a best solution for you, the client, based on investment, fees and the overall tax liability.

Compliant investment bonds (often known as platforms or insurance bonds)

Spanish Tax is presently 19% on withdrawals and retained by the insurer for direct payment to the Hacienda. There is no further liability on the first €6,000 which can include savings interest and dividends. For the next €44,000 it’s an additional 2% the policy holder will have to account for. So really, 21%. After €50,000 it’s another 2% so 23% on that bit. Losses can be set against gains.

An advantage of some Spanish investment bonds and some other arrangements, where the facility is available, is an ability to pay an income by way of an annuity. Annuities are very tax efficient in Spain – although they alter according to the length of time the annuity is for.

Using a specific annuity over a specific time, could lead to only 12% of any gain / tax being considered. For example, you would only consider 12% of 21% normally tax gain / rate. This in reality means paying tax at 2.52%. Contact us for further information, and we will seek the lowest charged products at all times as well.

Compliant insurance bonds really do simplify the administration but it often comes at a price. They are often expensive when sold through commission based salesmen, and other lower cost options are often ignored for “tax reasons”. However, the lower cost options, which pay little if any commission, often provide better investment returns and more flexibility, although there may be tax to declare and pay. This may or may not be the main consideration when looking at best “net returns”.

Key issues / concerns 

Non-Compliant Spanish bonds, whether sold within Trust or QROPS vehicles, are to be avoided – the reason is detailed in our pages Spanish specific pension information , and Spanish specific investment strategies including the pros and cons of investment bonds.

The main consideration should be the balancing of tax efficient advice which takes into account future plans, and charges of products.

The assumption that a Spanish Compliant Bond is the answer is misplaced, as is the assumption that the Hacienda will accept drawdown income from a bond or pension as a temporary annuity.

The taxation of pension lump sums is rarely mentioned and we wonder how many may have encashed pensions in the past ( e.g. via New Zealand until 2011) or taken a lump sum without disclosing this to the Hacienda?

The vast majority of advisers, providing investment or pension investment advice, do not have investment licences and are circumventing this by selling insurance wrappers that are expensive, commission laden, and possibly illegal if not Spanish Compliant.

What should you be considering
  1. If you are confident enough, then do your research, and place investment directly.
  2. If you need assistance, then seek advisers who are regulated themselves in the UK for pensions advice, and / or regulated for INVESTMENT advice in Spain. See our Spanish Introduction for information on regulated advisers (– link)
  3. Consider not only tax efficiency, but also costs!
  4. Point 4 – is, make sure the costs are accurate! If you are told the costs are 1% or 1.5% per annum in total and there is no fee up front, then you are probably being lied to in 95% of cases.
  5. Don’t get taken in by the great claims over QROPS and Insurance bonds or investment platforms that are really investment bonds. These add layered charges and are usually not the best outcome for clients (although we accept that in around 15% of cases they are).
  6. Don’t be a sheep. Just because your best friend was advised to do something, never assume this is the right thing. Each person is an individual and requires individual solutions. If your friend were to walk off a cliff, would you follow them?

Our Empirical evidence from clients we have spoken has shown us that many expat sales advisers in Spain, just sell a product to their clients for commission and do not provided financial solutions. The product is often a QROPS or an International SIPP or an investment bond, which may or may not be the best advice but this is not really considered. Don’t listen as 85% of the time you would be better off doing something else with your hard earned money or pension.

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    Regulatory Statement

    European Economic Area regulation:
    Aisa International s.r.o is regulated by the Czech National Bank to act as an independent intermediary for Insurance, Supplementary Pensions Savings and an independent consumer credit intermediary. Aisa International SAS (France) is authorised by the AMF and Orias for provision of intermediary services in France under both IMD and MiFID. Our Orias registration number (N° d’immatriculation) is 18000858 which can be checked at www.orias.fr. Our investment licence is provided by membership of ANACOFI-CIF under registration number (N° Siren) 497943639.

    Trading Names: Pensions for Expats is a registered trading name, but does not provide expat pension advice in that name. This website is aimed at individuals not resident in the UK. Please see www.aisagroup.org in order to ensure that you are dealing with the most appropriate group company.