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PENSIONS

What Brits should know about SIPP and QROPS pensions if moving to Spain

This Q&A offers some key information on SIPP and QROPS pension plans for British pensioners thinking of retiring in Spain, to help them decide which option is better for them.

Published: 9 May 2024 09:39 CEST
What Brits should know about SIPP and QROPS pensions if moving to Spain
Which UK pension plan is better if moving to Spain? Photo: Rollz International/Pexels

Q: What are SIPPs?

A: SIPP stands for Self-Invested Personal Pension and is a UK-based pension plan. If you open an international SIPP then you can draw from this while you’re living in Spain.

Q: What is QROPS?

A: QROPS stands for Qualifying Recognised Overseas Pension Scheme. It allows you to transfer your UK pension out of the country. They are outside the UK tax regime, but must be inside the European Economic Area (EEA) if you want to avoid charges from HMRC. They also need to have similar rules and regulations to a UK-registered pension plan. Many QROPs from those wishing to retire to somewhere in Europe are transferred to Malta. As there is a dual tax treaty between Spain and Malta you will not be subject to Maltese tax when you draw your pension from there.

Q: What do I need to consider when opening a SIPP?

A: If you choose to open a SIPP, as it is self-invested, you will be responsible for managing it and making all the investment decisions. It is therefore best for those who already have some knowledge of investing or those who have the time and who are willing to put the work in to learn. It does, however, mean that you also have greater control and flexibility over your finances. You can choose to have the SIPP managed by a professional advisor, but of course this is an extra expense. Your SIPP could also be potentially subject to UK tax laws. 

Q: What do I need to consider when opening QROPs?

A: This is best for those wishing to cut all ties with the UK and permanently retire to Spain for the rest of their lives. You could lose UK domicile if you choose to do this and don’t have any other assets there, but it could mean you could also avoid UK inheritance tax. It’s also ideal if you wish your family also live outside of the UK

Q: I intend to return to live in the UK at some point in the future, which is best for me?

A: As SIPPs are UK-based, if you plan on returning there to live at some point during your retirement, that option is best. If you have QROPS, you could be subject to a large tax payment if you want to transfer it back to the UK.

READ ALSO: Six factors British people need to consider before retiring to Spain

Q: Which option will be cheaper for me?

A: SIPPs are generally cheaper than QROPs as you are managing it and investing yourself. If you choose someone else to manage it for you, however, this may not be the case.

Q: Will my SIPP be subject to tax in Spain?

A: Yes, if you are resident in Spain then you must follow Spanish tax regulations meaning that any withdrawals from SIPPs will be subject to income tax here. Pensions in Spain are subject to progressive tax rates ranging from 19 to 47 percent.  While SIPPs are also subject to UK tax rules, due to the double tax treaty between Spain and UK, you will not be taxed twice.

Q: Will my QROPS my subject to tax in Spain?

A: Yes, again if you’re resident in Spain you will be taxed on pension income. You must report income from a QROPS on your annual tax return. If you’re already a Spanish tax resident when you move your pension, it’s important to be aware that you’ll pay Spanish income tax on the whole value of the fund, therefore it’s much better to move it beforehand and then make your permanent move to Spain. 

Q: I want my pension to be paid in Euros to avoid exchange fees, which option will be best for me?

A: If you want to be paid in Euros, then QROPS will be the best as you will have completely transferred it out of the UK and into the EEA. This means that when you draw your pension, it will be paid out to you directly in Euros.

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For members

TAXES

What are the fines if you make mistakes on your Spanish tax return?

Filling out your Spanish income tax return can be daunting and mistakes can be made, so what happens if you submit your form with an error? Will you always have to pay a fine and how much will it be? Is there are a way of correcting the mistake in time?

Published: 20 May 2024 14:09 CEST
What are the fines if you make mistakes on your Spanish tax return?

It’s easy to make a small mistake on your yearly income tax return in Spain, known as la declaración de renta. This is because there a so many questions and boxes to fill. The most important thing is to look over everything as carefully as you can.

If you have any doubts about anything, it’s best to contact the Agencia Tributaria directly by phone, in person or on the web or to contact a tax professional and ask them to help you.

READ ALSO: How to complete Spain’s Declaración de la Renta tax return in 2024

Even with double-checking though and being thorough, small mistakes may slip through. So what can you do?

Q: I realised after I submitted my tax return that it contained an error, what can I do?

A: It’s important to note that there are usually fines for any errors made on your return. These amounts can vary depending on the size of the mistake. Whether you omitted information on purpose or it was accidental, they could still possibly fine you.

If you have already submitted your return and realise later that you made a mistake, it’s important to rectify it as soon as possible and submit a second declaration voluntarily within the allotted time frame to do this, before the Treasury finds out.

Tax experts claim that the authorities will then take into account your income, circumstances and deductions on your last declaration to see if and how much you will be fined.

READ ALSO: 11 mistakes to avoid when filing your Spanish tax return

Q: Is there a way to modify a declaration that has already been submitted?

A: Yes, the Treasury explains two ways to do this on their website

If the error affects the taxpayer – either because they have to pay the Treasury more or less than what they should, they can request the modification of the error on the declaration that’s already submitted . This can be done online on the Agencia Tributaria website, as long as Hacienda hasn’t carried out the fiscal settlement yet.

If the error affects Spain’s Hacienda treasure , the taxpayer can submit a complementary declaration , something that can also be done online under ‘Modificar declaración presentada‘.

You will need to either have a digital certificate or Cl@ve details to do all this online.

READ ALSO: 

Hacienda has announced that in this campaign it will promote communication with taxpayers who may have had errors so that they can solve them.

Q: What are the fines if I don’t correct the mistakes on my Spanish tax declaration?

A: How much you get fine for making a mistake on la declaración de la renta can depend on numerous factors, including the severity of the error, whether it’s your or them who notify the mistake and how long passes before you pay. Generally speaking, for every month that you don’t pay the money back, the amount you owe will go up.

If the mistake is linked to minor tax fraud, in the sense that you have changed something and you have not specified it, Hacienda can fine you €100. Incomplete data or other mistakes can also lead to penalties of €150.

Even if you realise that Spain’s tax agency owes you money but you inform them after the tax deadline, they will pay you what’s owed but fine you €100. If it is the Treasury that realizes the error before you, the penalty goes up to €200.

If you have any erroneous deductions that don’t correspond to you, the Treasury considers this to be a serious infraction and the fine will be 15 percent of the amount you receive.

If fake invoices or supporting documents are used so that the declaration works out favourable to you and it’s more than €3,000, the fine is between 50 and 100 percent of the amount.

With more serious cases of fraud on your declaration, the fine can be up to 150 percent of the amount. When fraud is in the millions, the fine can be €30,000 and in very serious cases the amount rises to more than €300,000.

READ ALSO: What are the penalties and prison sentences for tax evasion in Spain?

Q: Will I always get a fine if I make a mistake?

A recent ruling by the Superior Court of Justice of Galicia has found that people have the “right to make a mistake” when filing their income tax return. This could set a new precedent across the country, meaning that those who make small mistakes may no longer be fined.

During the case, the accused’s lawyer, Nadia Vasallo, assured the court that he “had no intention of deceiving the Treasury,” but rather that “a tax advisor simply advised him on a complex operation.”

Most appeals are won by taxpayers who’ve been fined are won by clients, but unfortunately the bureaucracy and cost involved mean it’s not necessarily worth fighting it. 

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