UK and US Pensions in Spain: Tax Under the Treaties

Under the UK treaty, a pension paid to a Spanish resident is taxed only in Spain, except for UK government service. Under the US treaty, private pensions and annuities are taxed only where you live, though the US may still tax its citizens. Spain deducts foreign tax up to a cap; for the US, only tax not based on citizenship.

Retiring to Valencia with a UK or US pension? Who taxes it depends on what kind of pension it is: a private pension is taxed where you live, and a government-service pension stays with the paying country.

Does Spain tax your pension at all?

Yes, once you are tax resident: you declare income from anywhere in the world, subject to the treaty with the country the pension comes from. You are resident if you spend more than 183 days in a calendar year in Spain, or if your main base of activities or economic interests is here. For the general rules, see the pension tax guide and the tax residency guide.

What about UK pensions?

A UK pension paid to you as a resident of Spain is taxable only in Spain, unless it is for government service. So check who pays it first, because the payer decides which article applies.

A pension paid by the UK government or a local authority for services to them is taxable only in the UK. If you are both resident and a national of Spain, only Spain taxes it.

What about US pensions and Social Security?

A US private pension for past employment is taxable only in the State where you live, and so are annuities. For you, that State is Spain, unless you are a US citizen, whom the US may still tax.

Government-service pensions again stay with the paying State, unless you are resident and a national of the other State.

US Social Security is different: the US may tax it when it pays it to a resident of the other State or to a US citizen. The treaty does not say the US taxes it alone, so ask a gestor how Spain treats it before your first return.

If you are a US citizen in Spain, the US may still tax you as if the treaty had not come into force.

How do you avoid paying twice?

Spain, as your country of residence, normally relieves double tax with a deduction. For the UK, that deduction equals the UK income tax paid. For the US, it equals the US tax effectively paid on income the US may tax on bases other than citizenship.

In both cases the deduction cannot exceed the part of the Spanish tax that corresponds to that foreign income. Spain may also count exempt income when it sets the rate on the rest of your income.

What do you file in Spain?

If you are entitled to the double taxation deduction, you file a return in any case. A foreign pension payer is not obliged to withhold Spanish tax, so the limit for having to file drops to €15,876. The tax return calendar has the dates.

Foreign assets have their own return, Modelo 720, which residents in Spain may have to file. The foreign-assets guide has the details. Ask a gestor whether your pension scheme counts.

What comes next?

Read the German pension guide if you also have a German pension. For health cover, see the EU pensioner S1 guide.

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Not confirmed: Lump-sum withdrawals, and whether your UK or US scheme falls under the foreign-assets return: a gestor classifies each payment before you file. US Social Security: ask a gestor how Spain treats it, because the treaty text does not say the US taxes it alone.

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