Mark Jennings, a 58-year-old Briton, has lived in Altea since 2022. He has three retirement entitlements in the United Kingdom: a defined benefit pension from the company he worked for over twenty years, which promises him an annual amount from age 65; a defined contribution personal plan with an accumulated fund of 190,000 €, from which its rules allow him to withdraw money from age 55; and the state pension he will receive from the British government when he reaches state pension age. Mark has read that "pension plans don't go in the 720" and wants to know whether he can forget about all three. He cannot: at least one of them, almost certainly, should already have been declared.
The starting point: the rules do not mention plans
Neither the eighteenth additional provision of the Ley General Tributaria (the Spanish general tax act) nor article 42 ter of the Regulations (Royal Decree 1065/2007) includes pension plans as a category of their own. What they do include, in paragraph 3 of that article, are life or disability insurance policies with a foreign insurer and temporary or life annuities arising from handing over capital to a foreign entity. All of these are declared on Modelo 720, the Spanish return on assets held abroad, in the block for securities, funds and insurance, under code S.
The Agencia Tributaria, the Spanish tax agency, sets three rules for foreign plans in its frequently asked questions on the form:
| Status of the plan | Agency criterion | How it is declared |
|---|---|---|
| Accumulating, with no possibility of surrender | No obligation until the qualifying event occurs | Not declared |
| Accumulating, with surrender possible as with life insurance | Declared as insurance | Code S, surrender value |
| Qualifying event has occurred (retirement, disability) | The beneficiary must report | Code S, surrender value or capitalised value of the income |
Mark's three entitlements, one by one
The defined benefit company pension. There is no individual fund in Mark's name that he can surrender: there is a promise to pay him an income from age 65. Until he starts drawing it, it fits the first row: it is not declared. In the year he starts drawing it, it moves to the third row.
The personal plan accessible from age 55. This is where the problem lies. Mark is 58 and the plan rules already allow him to withdraw funds. Whether that possibility is classed as a right of surrender or as a qualifying event that has already occurred, the practical result is the same either way: the plan is no longer in the first row. Our reading, with the Agency's criteria in hand, is that it must be declared at the value Mark can withdraw on 31 December. If he can only withdraw part of it, it will have to be seen how that limitation is reflected, because for policies without full surrender the Regulations refer to the mathematical provision.
The British state pension. It does not arise from handing over capital to an entity, but from contributions to a public social security system. In our view it does not fit the description of annuities in article 42 ter.3.b). That is the reading we apply, with a warning: the rules do not expressly mention foreign state pensions, so the question is not settled by the text of the law.
The calculation for Mark's block
Mark also has an ISA holding investment funds worth 28,000 € and an account in London with 15,000 €.
- Securities, funds and insurance block: personal plan 190,000 € + ISA funds 28,000 € = 218,000 €. Above the threshold.
- Accounts block: 15,000 €. Below the limit, unless the average balance for the fourth quarter exceeds 50,000 €.
- Company pension and state pension: not counted, for the reasons above.
Mark files the 720 for the second block, with the personal plan under code S and the funds under code I. The fact that the ISA is a tax wrapper in his country does not change its nature here: what it contains are units in funds, and that is what is declared. How that wrapper is taxed in the United Kingdom is for his British adviser to confirm.
What changes on the day the income starts
When Mark turns 65 and starts drawing the company pension, that entitlement will appear on his 720 at the capitalised value of the income on 31 December. The Regulations refer to the rules of the Impuesto sobre el Patrimonio (Spanish wealth tax), and article 17 of that tax refers in turn to the rules the Impuesto sobre Transmisiones Patrimoniales (Spanish transfer tax) lays down for capitalising pensions, which distinguish between temporary and life annuities and take the beneficiary's age into account. Mark does not need to do the calculation by hand, but he does need to know that his block will grow sharply that year and that, under the 20,000 € rule, he will have to file again.
| When | Company pension | Personal plan |
|---|---|---|
| Today (age 58) | Not declared | Declared, withdrawable value |
| If he withdraws the whole fund | — | Reports the surrender and the income obtained |
| At 65, when payments start | Declared, capitalised value | Depending on what remains |
Many British, Irish or Nordic taxpayers do not declare their plans because in their country they are called pensions and in Spain they have read that pensions do not go in the 720. The Agency's criteria require you to check whether the plan can be surrendered or whether the qualifying event has already occurred. A plan that becomes accessible from a certain age can switch from not declarable to declarable on a birthday.
To classify your plans we need the rules of each one and the latest statement; you can tell us what you hold in the Modelo 720 form and we will ask for whatever is missing.
And for wealth tax
The Spanish wealth tax act exempts, in its article 4.Cinco, the vested rights of members of a pension plan and other retirement savings instruments that it lists by reference to Spanish legislation. Whether a foreign plan can benefit from that exemption depends on whether it is comparable to those instruments, and we do not take it for granted. It is an analysis we carry out separately from the 720, because the two obligations look at the same product with different questions. The general relationship between the two is covered in what is the relationship between the 720 and wealth tax?.
A check worth repeating every year
Pension plans change status without the holder doing anything: an age is reached, a disability occurs, the employer transfers the plan to another manager. Reviewing the status of each entitlement every January avoids finding out late that a plan left the first row two years ago. If that review reveals that something should have been declared earlier, what happens then is explained in what happens if I file it late. The general criteria on insurance and surrender are in is a foreign pension plan or insurance policy declared?.
Retirees and early retirees who arrive in Spain with pension entitlements from other countries are one of the profiles Salama Tax exists for; that page describes how we review those entitlements before preparing the 720.