Paying income tax on foreign pensions in Spain – don’t get caught out!

selective focus of word 'pension' made of wooden blocks with senior couple on background

Any taxpayer who is resident in Spain and is claiming a pension from abroad must make a number of considerations to avoid any nasty surprises, especially regarding taxation.

When in your home country – that’s to say the country from which the pension is being claimed – income tax is often withheld automatically in advance by the entity disbursing the pension. However, if that entity is not operating within Spain, this entity is not compelled to do so.

Therefore, if you’re required to fulfil personal income tax obligations in Spain, either due to provisions in the Double Taxation Agreement (DTA) with the pension’s country of origin or due to the absence of such an agreement, you need to understand your tax obligations.

What is the tax threshold on foreign pensions in Spain?

The amount of tax you need to pay on a foreign pension depends on a number of factors.

Principally, the threshold changes depending on whether it is the claimant’s sole source of income, or otherwise.

When a foreign taxpayer resident in Spain earns a pension from a foreign source, according to Article 96.3 of the Income Tax Act, the threshold to declare this income is currently set at 15,000 euros.

However, this changes if an individual’s entire earned income comes from a single source. Here, the threshold mandating the duty to declare stands at 22,000 euros per annum (as per Article 96.2.a and 3 of the Personal Income Tax Law).

That said, this threshold is generally not applicable to taxpayers who receive income from multiple payers. This is primarily due to the discrepancy that often arises between the taxes already remitted through periodic payments by the withholder or payer, and the eventual tax liability. However, there are instances where this threshold applies. These include:

  1. If the combined sum of earnings from the second and remaining payers, in order of amount, does not surpass 1,500 euros annually.
  2. In situations where employment-based earnings encompass pensions and passive benefits as defined in Article 17.2.a of the Income Tax Act, and the determination of the appropriate withholding rate adheres to the specialised procedure to be established by regulation.

The information is in accordance with the Central Economic Administrative Court ruling dated 28 June 2022.

How much tax do I need to pay on my pension?

In Spain, income tax is charged at the same rate for both general income and pensions.

Therefore, pensions in Spain are subject to progressive tax rates ranging from 19% to 47%, as follows:

  • Up to €12,450: 19%
  • €12,451 – €20,200: 24%
  • €20,201 – €35,200: 30%
  • €35,201 – €60,000: 37%
  • €60,001 – €300,000: 45%
  • Over €300,000: 47%

Your tax experts in Spain

If this all sounds very confusing to you, don’t worry – we’re here to help! At CostaLuz Lawyers, we make Spanish tax and pensions straightforward for you.

So, if you’re planning on moving to Spain for your twilight years – or you’re already in Spain and are approaching retirement age – don’t hesitate to get in touch for any assistance you need.

26 thoughts on “Paying income tax on foreign pensions in Spain – don’t get caught out!”

  1. I will be moving to Spain, my UK pension is from one source and less than Euro22,000 per year. From the information above does that mean I will not have to pay any Spanish tax on my income? Many thanks

    1. Maria Luisa Castro

      Dear Karen:

      Based on your situation—moving to Spain with a UK pension as your sole income source, totaling less than €22,000 per year—you might not be required to pay Spanish income tax on this income. Spain’s tax system includes thresholds for income taxation, and incomes below a certain level may not be taxable. However, tax residency status and international agreements, such as the double taxation treaty between the UK and Spain, can influence your tax obligations.

      It’s crucial to note that tax regulations can change, and individual circumstances can significantly impact tax liabilities. Therefore, while you might fall below the threshold for income tax based on the information provided, it’s highly recommended to seek advice from a tax professional familiar with both Spanish and UK tax laws for accurate and personalized guidance. We can offer personalised advice if you need it and help you to submit taxation every year.

      Best regards,

      Maria

  2. I pay tax on my Teachers Pension in the UK but when my old age pension is due later this year will I pay income tax on it in Spain? My State Pension falls below the 15000 euro threshold.

    1. Maria Luisa Castro

      Dear Caron:

      If you’re a tax resident in Spain, you must declare worldwide income, including UK pensions, subject to Spain’s tax rules due to the Spain-UK DTA ( Double Taxation Agreement).

      The need to file a tax return depends on your pension income: €22,000 annually from a single payer, or €14,000 if from multiple payers with additional income over €1,500. We can assist you if you need assistance for filing your tax returns

      Best,

      Maria

  3. My spouse and I are considering retiring early to Spain. We expect to withdraw $80,000 USD dollars from both our employment-related pensions, and eventually including our government pension, when that begins when we reach our government’s retirement age. Does that mean we would owe $36,000 USD (converted to equivalent Euros) for the rest of our lives if we become Spanish tax residents? If for example, we owed $8000 USD on those same funds on our U.S. tax filing, would that be deducted from our Spanish tax debt in the equivalent Euros? Thanks in advance. We are also looking finding a good tax attorney should we decide to make this life change, so I am glad we found your site.

    1. Maria Luisa Castro

      Dear Steve:

      Retiring to Spain and understanding the tax implications, especially for U.S. citizens, requires careful planning. Spain and the U.S. have a Double Taxation Agreement (DTA), which is designed to prevent the same income from being taxed by both countries. Here’s a brief overview based on your situation:

      Taxation of Pension Income:

      As Spanish tax residents, you would be taxed on your worldwide income, including your employment-related and government pensions. The tax rate in Spain varies depending on the amount of income and the region where you reside, as each autonomous community in Spain sets its own tax rates within the framework of the national tax system.

      Double Taxation Relief:

      Under the Spain-U.S. DTA, tax paid in one country can often be offset against tax due in the other, to prevent double taxation. This means if you pay tax on your pension income in the U.S., you can typically claim a credit for this tax against your Spanish tax liability on the same income.

      Example Calculation:

      If you owe $8,000 USD in U.S. taxes for your pension income, and your Spanish tax bill on that same income is $36,000 USD (converted to Euros), you should be able to deduct the $8,000 USD you paid in the U.S. from your Spanish tax bill, reducing your tax liability in Spain accordingly. However, the exact amount of relief you get will depend on the specific details of your income and the tax rates that apply in the Spanish region where you reside.

      We will be pleased to assist you further on this if needed

      Best regards,

      Maria

  4. My only income is my U.K. private pension which is £24,000, would I deduct my tax allowance here in Spain of €5,500 + €2,000 before seeing if my total income is below €22,000 and therefore not liable for income tax?

    1. Maria Luisa Castro

      If you are resident for tax purposes in Spain, you will be subject to Spanish Personal Income Tax on all your worldwide income including your UK pension. If your only income is this pension the limit for being liable to declare in Spain is 15,000 euros, so in general terms you would be obliged to declare.

  5. Thanks for all your great answers to the questions above. We’re American citizens who emigrated and became Canadian citizens. Each year, we filed our Canadian taxes and then our US taxes. We benefited from the treaties that you described. So unless we earned US income, we generally had to pay no US taxes. Now we have immigrated to Spain. We did not understand the tax implications of the 183+ days (and as of Dec 31, we were here 185 days). We have been assuming that we should file Spanish first, and then Canadian and then US. Both Canadian and US incomes are all pensions now. We no longer earn other income. and we’re in Spain on the NLV so we can’t work here even if we wanted to. Some pension sources deduct taxes in advance and some do not–so it seems as if the benefit of taxes already paid internationally won’t be available to us if we file in Spain first. Never mind that no one seems to know when the filing date is in Spain . . . but that’s another issue. Would you recommend that we file in North America first and then in Spain? Thanks so much! All my best, Linda

    1. Maria Luisa Castro

      Dear Linda,

      Thank you for your detailed message. International taxation can indeed be complex, especially with multiple citizenships and residency involved. Given the specifics of your situation, it’s crucial to approach this with careful consideration of the tax treaties and regulations in place between Spain, Canada, and the U.S., we cannot give to you any answer without previous analysis of your specifics , they need to be reviewed in detail and you need to obtain personalized advice. You can contact is for further personalised advise on this if needed.

      Best regards,

      Maria L. de Castro

  6. Angela McGuirk

    Hello again, I´m terribly sorry. The tax bracket is 30% which changes the figures quoted above. 32300.00 x 30% = 9690.00 annually however should the tax relief be applicable it is
    32300.00 minus 14000.00 = 18300 x 30% = 5490.00 annually. Hopefully this is more or less correct now.

    1. Maria Luisa Castro

      Dear Angela:

      In your case, as a tax resident in Spain with a total pension income of €32,300, you must apply Spain’s progressive tax rates after considering personal allowances. The calculation isn’t as straightforward as applying a single percentage to the entire amount. Instead, different portions of your income are taxed at varying rates, starting from 19%. The allowance for individuals under 65 is €5,550, reducing your taxable base, not a tax-free allowance of €14,000. Your actual tax liability will likely be lower than simply applying 24% to the total income.

  7. Can you clarify what happens in the following circumstances. I am a UK citizen
    I am a tax resident in Spain and paid Spanish tax etc as Autonomos for many years.
    Now aged 69 and retired, My sole income is from State Pensions (UK and Spanish)
    For 2023 I received €4414 from INSS Spanish Pension plus €6792 (equivalent) from UK State Pension Plus €223 bank savings interest Total €11429. This is below both the €22000 and €15000 thresholds, where no Spanish tax RETURN is required. However my current tax free allowance is €6700, So technically this leaves €4729 to pay tax on at 19%, So If I do not submit a tax return (as per threshold rules) am I going to get into trouble, I find the rules around this very confusing

    1. Maria Luisa Castro

      Dear Veronica,

      Thank you for contacting us.
      Please be informed that if you are a tax resident in Spain, you will be subject to Spanish Personal Income Tax on all your worldwide income, including your UK/Spanish pensions and interest.

      Given that Spanish taxes depend very much on each situation, on each specific case and there are many rules, reductions and exceptions, we can offer to study your case with your real situation, checking thoroughly the Spanish tax legislation, the Double taxation agreement signed by Spain and UK and give you a proper answer and to determine whether you are obliged to file a tax return and in this case what will be the amount of income tax to be paid. We will be pleased to offer you our tailored consultancy, which is a written reply or a tax legal report.

      We will contact you by email to give you more details.

      At your disposal for any further clarification.

      Kind regards,

  8. Antony C Mattocks-Lewis

    Good afternoon,
    I wonder if you could advise please.
    We will be moving from our house in Valencia to a new house in Monachil, Granada in a couple of weeks.
    I have been autonomo for 3 years and before COVID had a part time contract working for a language school as an ESL teacher for several years. I have permanent and fiscal residency here in Spain.
    I will qualify for my UK state pension in 2 years time but also have approx £165.000 in a a Scottish Widows UK Drawdown PP and £275.000 in an International SIPP. I am considering starting to taking an income from them within the next 12 – 18 months as I don’t want to continue paying to be autonomo as it is so expensive also with the Asesoria fees held on retention and I don’t think I will qualify for any Spanish State pension as I wouldn’ t have sufficient years.
    Can I have my drawdown pension paid to a uk bank account but then declare it as income in Spain ?
    I am looking at a figure of £3000 pm until my State pension is available then reducing to £2000 pm. I want to make sure I comply with the tax requirements. I wasn’t sure if it has to be paid directly to a Spanish bank account. The same for my UK state pension in 2 years time.
    Would you be able to assist in tax returns when I live in Granada.

    Many thanks
    Antony

    1. Maria Luisa Castro

      Dear Antony:

      Thank you for reaching out. Moving to Granada sounds like an exciting adventure! When it comes to managing your pension income, it’s essential to navigate the tax implications correctly, especially across borders.

      Generally, income received from UK pensions can be declared in Spain, even if paid to a UK bank account. However, various factors, such as residency status, tax treaties, and the specific nature of your pensions, can influence the tax treatment.

      Given your circumstances, it’s crucial to ensure compliance with Spanish tax requirements and optimize your tax situation. We specialize in tax advisory services and have experience assisting expats with their tax obligations in Spain.

      Our Tax specialist, Ana Landa, will reach out to your email shortly to provide further information and discuss how we can assist you in managing your tax affairs effectively in Granada.

      Best regards,

      Maria L. de Castro

  9. Douglas J Hale

    Hello,
    I have a question or two I am hoping you can help me with regarding my U.S.-based/taxed public service pension and taxation in Spain.
    Article 21 regarding Government Service, paragraph 2 of the Tax Treaty between Spain and the U.S. states:
    (a) Any pension paid by, or out of funds created by, a Contracting State or a political
    subdivision or a local authority thereof to an individual in respect of services rendered to that
    State or subdivision or authority shall be taxable only in that State.
    (b) However, such pension shall be taxable only in the other Contracting State if the
    individual is a resident of, and a national of, that State.

    If I read this correctly, As a tax resident of Spain, I would not be taxed on my public service pension (though it would be considered income when calculating my tax bracket for other income), but if I became a Citizen it would then be taxed, or am I just not understanding section (b)?

    I thank you for your time,
    Douglas

    1. Maria Luisa Castro

      Hello Douglas,

      Thank you for your inquiry regarding taxation of your U.S.-based public service pension in Spain. The provision you referenced, Article 21 of the Tax Treaty between Spain and the U.S., indeed addresses the taxation of government service pensions.

      As you correctly pointed out, paragraph 2 of Article 21 stipulates that pensions paid by a contracting state (in this case, the U.S.) to an individual for services rendered to that state are taxable only in that state. However, there is an exception outlined in subparagraph (b), which states that the pension would be taxable in the other contracting state (Spain) if the individual is both a resident of and a national (citizen) of that state.

      So, if you are a tax resident of Spain but not a citizen, your U.S.-based public service pension would generally be taxable only in the United States, as per the treaty. However, it’s important to note that tax treaties can be complex, and their application may vary depending on individual circumstances.

      For a definitive analysis of your situation and how the tax treaty applies to you, it would be advisable to conduct a detailed review with a tax advisor or legal expert familiar with international taxation and the specific provisions of the U.S.-Spain tax treaty. They can provide personalized guidance based on your residency status, citizenship, and other relevant factors.

      If you’d like further assistance or a more detailed analysis of your case, please feel free to reach out, and we can discuss your situation in more depth.

      Best regards,

  10. Mark Brian Moss

    If my only income is from my UK private pension, and it is below €22,000 per year, then am I exempt from Spanish taxation as a Spanish (expat) resident?

    1. Maria Luisa Castro

      Dear Mark:

      As a Spanish resident, if your only income is from a UK private pension and it is below €22,000 per year, you are generally exempt from filing a Spanish tax return. However, it’s advisable to confirm this with a tax advisor to ensure compliance with all applicable regulations.

      Best regards,

  11. Good afternoon, I have Spanish residency and have two British pensions, one is local government so must remain taxed in UK, the other is the British state pension.The local government pension has just risen above the threshold (£12570.00)That doesn’t concern me, what I would like to know is will I pay tax on my British state pension? From April this year it is £221.59 per week,(£11522.00?) I am 80 years old.Regards Norman.

    1. Maria Luisa Castro

      Good afternoon,

      If you have Spanish residency and receive a British state pension, it’s important to understand how it will be taxed. Under the Spain-UK double taxation agreement, your British state pension will be taxable in Spain.

      Key points:

      Local Government Pension: This remains taxed in the UK.
      British State Pension: Taxed in Spain as regular income.
      Given the progressive tax rates in Spain, your total income will determine the exact tax rate. It’s advisable to consult a tax advisor for personalized guidance.

      For more information or assistance, feel free to reach out.

      Regards,
      Norman

  12. We lived in Fuerteventura for 7 years as tax residents then moved to the main land March 2023. Due to illness we have our home here for sale as we need to be within walking distance of amenities.
    More than one question please, firstly will we have to pay tax when we sell (we are staying in Spain) not sure where we will move to still in Andalucia hopefully.

    The other question, I am 75 my Husband 79. Both later this year.

    £15,442.96 52 weeks total My total income
    £22,565.96. 52 weeks total Husbands total income.
    We are both paying tax on this (note it’s £ Stirling )
    It’s state pensions and works pensions.
    Tax to pay
    David 3.516,68 €
    Lynn 988,01 €
    For 2023

    Is this correct please?
    Kind regards

    Lynn

    1. Maria Luisa Castro

      Hello Lynn,

      Thank you for your message. I understand your situation and will do my best to provide some clarity.

      Capital Gains Tax on Property Sale

      Since you are planning to stay in Spain after selling your home, you may be liable to pay capital gains tax (CGT) on the sale of your property. However, there are exemptions and reductions available, especially for residents over 65 years of age who have lived in the property for at least three years. Given your ages and the length of time you’ve owned your home, you might be eligible for some of these benefits. It’s essential to have a professional review your specific situation to confirm.

      Income and Taxation
      Regarding your income and tax:

      David’s Income: £22,565.96 annually
      Lynn’s Income: £15,442.96 annually
      Both incomes are subject to Spanish taxation as you are tax residents in Spain. The tax you mentioned for 2023 is:

      David: 3,516.68 €
      Lynn: 988.01 €

      These amounts seem to reflect tax on your total incomes, but it is crucial to verify whether these taxes have been calculated correctly, also know that Spain taxes worldwide income for its residents, and your UK pensions would be included in this calculation. The tax rates can vary depending on your total income and applicable deductions or allowances.

      Action Steps
      Review Capital Gains Tax: Ensure you qualify for any exemptions or reductions on the capital gains tax when you sell your property. This could significantly reduce your tax liability.

      Please let me know if you would like us to assist further with these matters. We can offer you a detailed service and provide a quotation for our fees.

      Best regards,

  13. Good Morning,
    I am looking to retire to Spain within the next two years. At that point my private pension drawdown would be around 12500 euros. I would also drawdown a sum only from interest earned on my savings, of roughly 8000 euros per annum. Making a total of €20500 per annum. Would I be right in thinking these sums would be subject to income tax, or would they be tax free? Both sums are from expected interest earned without touching the capital.
    Thank you for any help you can give.

    1. Maria Luisa Castro

      Taxation of Pension Income and Interest in Spain

      When retiring to Spain, your private pension drawdown and interest earned on savings will generally be subject to Spanish income tax. Here’s a brief overview:

      Pension and Interest Tax Rates (2023):

      1. Private Pension Drawdown:

      Amount: 12,500 euros per year
      Tax: Treated as regular income and taxed according to these rates:
      Up to 12,450 euros: 19%
      From 12,450 to 20,200 euros: 24%
      From 20,200 to 35,200 euros: 30%
      From 35,200 to 60,000 euros: 37%
      Over 60,000 euros: 45%

      2. Interest Earned on Savings:

      Amount: 8,000 euros per year
      Tax: Categorized as investment income and taxed as follows:
      Up to 6,000 euros: 19%
      From 6,000 to 50,000 euros: 21%
      Over 50,000 euros: 23%
      Additional Considerations:
      Double Taxation Agreements: Spain has agreements with many countries, including the UK, to avoid being taxed twice on the same income. Consulting a tax professional is advisable to understand your specific situation.

      Our Services:
      We offer tax planning and support to help you understand your obligations and minimize tax liability.

      1. Initial Tax Consultation:

      Includes: Review of your financial situation and tax-efficient retirement planning.
      Cost: 200€ + VAT.

      2. Ongoing Tax Support:

      Includes: Tax planning, preparation, and filing of tax returns.
      Cost: Based on the complexity of services required.
      Contact Us:
      Let us know if you need further information or wish to proceed with our services. We are here to help ensure your retirement to Spain is smooth and tax-efficient.

      Best regards,

      Maria

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