Living in Spain on a Foreign Pension: Your Yearly Tax Return

Most of Spain's tax treaties separate pensions into two groups, and the difference decides everything:

• Pensions from private employment, and in many treaties the ordinary state retirement pension. The general rule is that they are taxed only where the pensioner lives: in Spain.
• Pensions for service to a government: civil servants, the armed forces, state school teachers, police. The general rule is the opposite: taxed only by the paying country, unless the pensioner is a Spanish national.

Two neighbours from the same country, one a retired civil servant and the other a retired engineer, are therefore taxed in different countries. And each treaty has its own wording. The treaty with the United States treats social security benefits in its own way, and the one with Germany has specific provisions too. The only safe method is to read the article that applies to each of your pensions.

A government pension taxed only abroad is usually exempt in Spain "with progression". It pays no Spanish tax, but it is taken into account to set the rate on the rest of your income. It has to be declared as exempt income.

The second trap is the filing threshold. A foreign payer does not withhold Spanish tax, so the income level at which a return becomes compulsory is far lower than for someone with a single Spanish payer: €15,876 a year in recent years. Many foreign pensioners pass it without knowing.

The third is double withholding. If the pension is taxable in Spain and the paying country keeps deducting tax, the answer is not to pay twice. It is to claim exemption or a refund there, with a Spanish tax residence certificate issued for treaty purposes.

• A written note on which country taxes each of your pensions, with the treaty article behind it.
• Your Spanish income tax return, with the foreign pensions and any other income.
• A letter or form for the payer abroad so that it stops withholding where it should not.
• Monitoring of your residence certificate, which has to be renewed.
• A warning if form 720 applies to the accounts and investments you kept at home. That filing is described under Modelo 720.

The fee is €210 a year, taxes included. Two or more pensions from different countries add €69 a year. Claiming back tax wrongly withheld at source is quoted from €290.

These notes describe the general position and are a starting point, not a substitute for reading the treaty against your own pensions.

United Kingdom. The state pension and private or occupational pensions are taxable in Spain for a Spanish resident. Pensions for government service (civil service, armed forces and similar) remain taxable only in the United Kingdom, unless the pensioner is a Spanish national.

United States. Private pensions and retirement accounts are generally taxable in Spain for residents. Social security benefits have their own treaty rule. US citizens remain taxable in the United States under the saving clause, with relief mechanisms; see our articles on US pensions under the treaty.

Germany. The treaty contains specific provisions under which Germany keeps a limited taxing right over certain pensions, in addition to Spanish taxation, with a credit.

France, the Netherlands, Belgium, the Nordic countries. The private/public distinction applies, with country-specific variations for social security pensions and lump sums.

• Not filing because "it was taxed at source". If the treaty gives Spain the right, source taxation does not discharge it.
• Leaving out an exempt government pension. It must be declared so that the rate on other income is right.
• Treating every pension paid by a public body as a government-service pension.
• Converting at a single year-end rate instead of using the rate for each payment.
• Declaring net amounts received rather than gross pension with the foreign tax shown separately.
• Forgetting form 720 for accounts and investments kept at home.

The Spanish tax agency receives pension information automatically from many countries. Letters about undeclared foreign pensions are now routine, and they usually cover four years at once.

• The annual statement from each pension payer, showing gross amount and tax deducted.
• A note of what each pension is: state, occupational, personal, government service.
• Bank statements showing the amounts received, if the payer's statement is unclear.
• Details of other income: rent, interest, dividends, in any country.
• Your foreign tax return or assessment, if one was issued.

The pension is usually the simplest part. Around it sit the assets built up over a working life: a home kept and let in the country of origin, investment accounts, a private pension pot not yet drawn. Each has a Spanish treatment once you are resident, and some decisions are better taken before the move than after: when to sell, whether to draw a lump sum, how accounts are held.

Those are advisory questions, covered under tax residency, wealth tax and inheritance tax. The yearly service on this page begins once they are settled.