Income taxes on pensions.

Pensions from the government and private companies are both taxed as if they were earned profits. Taxes on state benefits are frequently paid in the country that pays the pension.

The investment tax laws apply to the majority of personal pensions. Personal pensions are essentially taxed as savings accounts. Any personal pensions that pay out an annuity can be treated as annuities with a lower tax rate under a special tax regime for annuities. However, compare the available annuity rate to the alternative benefit from your pension before converting your pension to an annuity. We will provide you with advice and analysis on which choices are best for your specific situation.

Contribution or arrangement.

On the topic of pension taxes, there are two main points to remember. There are the following:

• The Pension Commencement Lump Sum (PCLS).

• Withdrawals under “Pension Freedoms” arrangements.

Pension Commencement Lump Sum.

In the United Kingdom, you can take a tax-free lump sum of up to 25% of the amount of your defined benefit (personal pension) pension pot. A tax-free figure can also be obtained from a defined benefit plan (final salary) pension, but this is calculated differently. Please notice that in Spain, these PCLS sums are not tax-free. However, with the right guidance, you might be able to manage your affairs so that you do not need to take this PCLS.

Pension Freedoms.

Similarly, in the United Kingdom, you can now withdraw more than 25% of your pension, but you must pay tax on the amount that exceeds the 25% PCLS allowance. The sum will be applied to your wages and used to calculate your tax liability in the year you make the withdrawal. However, under a new UK tax system known as ‘pension tax,' the ability to tax these pension withdrawals has been established.

Since the pension tax was not in force when the agreement was made, and Spain does not have an equal tax, this tax is not protected by the Double Taxation Agreement between Spain and the United Kingdom. It is possible that taking money under the UK pension freedoms laws would result in the same money being taxed twice.

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