Retiring to Spain with your pension

Question: I retire in 10 months aged 48. I receive an £84,000 lump sum and a £1,200-a-month pension. I no longer own property in the UK and am moving to Spain to join my family. Should I take the entire amount with me and have the pension transferred each month or use an offshore account to gain tax-free interest? PA, Essex

Answer: Andrew Swallow from Swallow Financial Planning replies: You are lucky to be retiring at age 48! If you take the tax-free lump sum and you move to Spain you will be subject to Spanish income tax as you will be resident in Spain but domiciled in England.

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You also need to be careful about Spanish inheritance tax and other legal issues so you should take advice in Spain.

As for the pension, you can have it paid in Spain but it will be subject to PAYE and the UK pension provider will need proof you are no longer resident before it stops deducting tax. At that time I am sure the computer systems of the UK Revenue & Customs and the Spanish authorities will have a chat and you will be subject to Spanish tax.

It's worth speaking to a Spanish tax expert, but I suspect you would prefer to pay the UK tax rates rather than the Spanish ones. Spain follows the system of having high income tax rates and low purchase tax rates whereas we tend to do it the other way around (believe it or not!).

Don't forget to keep paying your basic old age pension stamp each week to safeguard your UK old age pension at age 65.

If you're retiring at age 48 and put your cash into an offshore cash bond then never repatriate it because you delay your move to Spain until age 55 you may avoid the tax.

Technically however you are liable to tax on your income whilst a UK resident and liable to tax on your worldwide income when you become a Spanish resident so you are likely to be hit with a bill at some point. are happy to offer assistance on finance in Spain.

This is Money's Sascha Hutchinson adds: It's worth noting that there has recently been a crackdown on people using offshore accounts to avoid paying tax. The UK Government is forcing banks to release details of customers to check whether they are using offshore accounts to evade tax.