Brian’s Question: UK vs Spain – Where Is It Better to Be Taxed?

Many of our clients are relocating from the UK to Spain, often with UK pensions and property income, and one of the most frequent questions we receive is:

“Will I pay more tax in Spain or the UK?”

This post is based on a real inquiry from Brian, a 72-year-old UK resident with a personal pension, rental income, and plans to move permanently to Spain with his Spanish wife. Here’s a breakdown of what anyone in a similar situation should consider.

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Brian’s Financial Snapshot

• UK personal pension: £650,000
• UK property holdings: £350,000
• Annual rental income: £28,000
• Planned move: Permanent relocation to Spain
• Potential tax residency: Spain

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1. Becoming a Spanish Tax Resident

If Brian spends more than 183 days per year in Spain, or if his main economic interests shift there, he will be considered a Spanish tax resident. This means he must declare worldwide income in Spain, including his UK pension withdrawals and rental income.

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2. Double Taxation Agreement (DTA) – UK & Spain

Spain and the UK have a Double Taxation Agreement that:

• Assigns taxing rights between the two countries
• Prevents double taxation by allowing tax credits

This means that while Brian won’t be taxed twice on the same income, he may pay more overall depending on Spain’s tax rates.

If you’re interested in claiming relief from UK tax under this agreement, you can find the HMRC form here:
Spain Individual – Claim for Relief from UK Tax (HMRC Form)

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3. Pension Taxation

• In the UK: Pension withdrawals are partially tax-free (up to 25%), with the remainder taxed at progressive rates (20%, 40%, 45%).
• In Spain: All withdrawals are taxed as general income, from 19% to 47%, with no tax-free lump sum.

If Brian becomes a tax resident in Spain, Spain will have the right to tax his pension. If any UK tax is withheld, it may be credited against his Spanish liability, but the final rate may still be higher.

Note: This applies to private, occupational, and personal pensions. Certain UK government pensions (e.g. civil service pensions) may be taxable only in the UK under the tax treaty. Our specialist can help determine the correct treatment in your specific case.

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4. Rental Income

• Taxed in the UK: As the property is located there, UK tax applies first.
• Declared in Spain: As a Spanish tax resident, Brian must also report it in Spain.
• Tax coordination: UK tax paid can be deducted from the Spanish tax bill, but Spain may apply a higher rate depending on Brian’s total taxable income.

You can read more about this in the Spanish Tax Agency’s Guide for Non-Resident Income Tax (IRNR) and the IRPF Manual for Residents.

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5. Wealth & Inheritance Taxes

• UK: No wealth tax. Inheritance tax may apply in some situations.
• Spain: Wealth tax is levied in certain regions (with exemptions). Inheritance tax rules vary depending on the region and the relationship between parties.

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Summary: Tax Comparison

Pension Withdrawals

• UK: 20–45%, with 25% tax-free
• Spain: 19–47%, no tax-free portion

Rental Income Tax

• UK: 20% basic rate
• Spain: 19–47%, depending on total income

Wealth & Inheritance Tax

• UK: No wealth tax; inheritance tax applies in some cases
• Spain: Wealth tax applies in some regions; inheritance tax varies

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Important Considerations

While this comparison is accurate under current law and tax treaties, your personal situation can vary significantly depending on:

• The type of pension (private, occupational, government)
• The ownership structure of your property
• The timing and structure of pension withdrawals
• Your physical presence in each country
• The region of Spain where you live, as tax rules differ

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Our Advice

A personalised consultation with an international tax advisor is essential if you’re planning to relocate. We can help you:

• Simulate your tax burden in both countries
• Plan your pension withdrawals efficiently
• Assess whether wealth tax applies in your region
• Structure your rental income optimally

If you’re planning your move to Spain and want to avoid costly mistakes, contact us today to arrange a one-on-one session with our tax expert. We’ll help you relocate with peace of mind and full clarity.

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CostaLuz Lawyers – helping you move with clarity and confidence.