The Definitive Guide to QROPS Schemes for Expats in Spain

Published on 13/06/2014 in Taxes in Spain

Thousands of British expats are currently spending their golden years in Spain. A combination of fabulous weather and a lower cost of living is attracting more retirees to the country than ever before. However, people need to fully understand the Spanish tax system - as well as the government's rules on offshore pension schemes - if they want to enjoy the full benefit of their hard-earned pension. Careful planning with the help of a financial advisor will protect a pension fund from unnecessary taxation by the British government.

The Regulations Surrounding QROPS Schemes for Expats in Spain

A Qualifying Recognised Overseas Pension Scheme involves the transfer of a UK-based pension fund to one approved by HMRC; however, only approved schemes are eligible - a full list is available on the HMRC website. Retirees must understand that their pensions may be subject to UK tax and scrutiny from HMRC for the first five years of living in Spain. The Spanish government also recently imposed some strict disclosure rules on foreigners living in the country, so expats will now have to declare any assets they hold - domestic or international - that are valued over EUR50,000. In order to qualify for the benefits a scheme such as this offers, people must have been resident in Spain for at least 183 days every year for the past five years.

What are the Best Schemes for British Expats Living in Spain?

There are four main jurisdictions that offer desirable QROPS schemes which are recognised by HMRC. Guernsey has long been one of the world's leading jurisdictions for this type of offshore pension; however, recent changes of policy from the HMRC have meant some firms decided to move their operations elsewhere. A person living in Spain who meets the qualifying criteria will receive an income from a pension without paying tax, but the island is not as popular as it once was for this type of arrangement. As a result, New Zealand has quickly become a world-leading jurisdiction for offshore pensions. As well as offering all of the usual benefits to expats living in Spain, New Zealand schemes allow fund holders to take the proceeds of their pension in cash - under the country's 'return of capital' regulations.

The Isle of Man is another of the world's 'big four' offshore pension havens for British expats, and its schemes are - in the main - administered by accountants and lawyers who were trained in the UK. After the Isle of Man authorities stopped deducting tax from income before paying the policyholder, the tiny island was able to compete more vigorously with Guernsey on the world stage. Although there is no double taxation treaty with Spain, this is now no longer an issue due to the change in regulations. However, it is widely believed that Malta will soon be a major jurisdiction for the standard QROPS transfer - one to rival the Isle of Man. It is an English-speaking country which is actively trying to attract new providers.

Why is Spain Unsuitable as a Location for an Offshore Pension Fund?

The Spanish regulations have no provision for the recognition of trusts, so a QROPS transfer will inevitably lead to funds losing their trust-based protection, and that will result in new tax burdens. In short, British expats in Spain should have their pension funds held in trust in of the 4 main jurisdictions, as the income an offshore pension generates can be declared as an annuity - a recognised financial arrangement that brings with it significant tax-related benefits.

Written by: Whichoffshore

About the author:

Whichoffshore provides professional expatriate information on offshore estate planning, QROPS pensions and more, in order to help the British expatriate make the most of their money.

For more information, please visit - Expat & Offshore

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16 December 2014 @ 21:30

Qrops is no longer required as the Budgetary pension freedom changes which take over april 2015 allow more efficient ways to access your pension pots

Stephen said:
08 April 2013 @ 10:40

I understood that if a person ported their pension fund to a QROPS AND took more than the allowed 'tax free cash' as set out by HMRC then whenever they became a U.K. resident again in the future then HMRC would demand 55% tax on all the cash taken from the pension. Therefore is a QROPS where over 25% is taken as 'cash' a safe option?

QROPS Adviser said:
02 March 2013 @ 10:57

New Zealand no longer allows the fund to be returned in cash. Isle of Man no longer allows tax free withdrawals on income. All income is taxed at 20%.
Malta has a tax treaty with Spain so it is a better location for Spanish residents.
Pensions are outside of the scope of the new foreign asset reporting requirements.

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