Margaret taught History for thirty years at a state secondary school in Leeds. On retiring she bought a house in Jávea with her husband and has lived there all year round since 2022. She receives three things from the United Kingdom: the state pension, her pension as a state school teacher and a small annuity from a company scheme from the few years she worked at a publisher. Everything is paid into an account at a British bank, and from there she transfers what she needs each month to her Spanish account. One neighbour has told her that in Spain "British pensions are not declared because they already pay tax there". Another says everything has to be declared. Both are partly right, and neither is entirely right.
If you live in Spain, everything goes into the return
The starting point allows no qualification. Anyone who is tax resident in Spain (and Margaret is, because she lives here all year) is taxed under IRPF (Spanish personal income tax) on their worldwide income. For Spanish law, pensions are employment income: article 17.2.a) of the Spanish income tax act (IRPF) expressly includes pensions and retirement benefits from public schemes, and pension plan benefits receive the same treatment. It makes no difference which country pays.
What the treaty decides is not whether the pension is declared, but who may tax it and how double taxation is corrected if both can. That is why the phrase "it is not declared because it already pays tax there" is almost always a mistake.
Margaret's three pensions, one by one
The treaty between Spain and the United Kingdom, like most of those signed by Spain, separates pensions according to their origin. Assuming that on this point it follows the usual structure of the OECD model, which is the first thing to check in its text:
| Pension | Usual article of the model | Who normally taxes it | What happens in the Spanish return |
|---|---|---|---|
| State pension based on contributions | Private pensions, or a specific rule in the treaty | Residence, unless there is a special rule | Declared and taxed in Spain |
| Pension as a state school teacher | Pensions for public functions | The paying State, unless she is a national and resident of the other State | Declared; taxed abroad, with double taxation removed here |
| Company scheme annuity | Private pensions | Residence | Declared and taxed in Spain |
The teacher's pension is the one that needs most care. Under the model, a pension for public services is taxed in the paying State, unless the beneficiary is resident in and a national of the other State. Margaret is British, not Spanish: her state school pension would, in principle, remain reserved to the United Kingdom. If she were Spanish and resident in Spain, the result would change. How this article works is set out in public or private pension.
How double taxation is removed in the return
When the treaty reserves a pension to the other country, Spain does not tax it, but that does not mean it disappears from the return. Most treaties remove double taxation through an exemption that allows the income to be taken into account when calculating the rate on the rest. In practice, if the treaty follows that scheme, Margaret's teacher's pension pays nothing in Spain, but it raises the rate at which her state pension and her company annuity are taxed.
When the treaty allows both countries to tax, the Spanish resident declares the pension and deducts the tax paid abroad using the mechanism in article 80 of the IRPF act: the lower of two amounts, what was actually paid abroad or the result of applying the Spanish average effective rate to that income. The detailed calculation is in the international double taxation credit and, for someone paid by several countries at once, in I receive a pension from two countries.
If the British body keeps withholding tax on the state pension or the scheme annuity as if Margaret lived in the United Kingdom, that withholding is not a tax Spain will credit if the treaty gives the income to Spain: the right course is to ask over there for the withholding to stop and for what was withheld to be refunded. How that is done is British law and her adviser there confirms it, using the certificate of tax residence in Spain issued by the Agencia Tributaria (the Spanish tax agency).
The account you are paid into: Modelo 720
The third question is the one almost everybody forgets, and it has nothing to do with the tax on the pension. Margaret, resident in Spain, has an account at a British bank. If her accounts abroad together exceed 50,000 €, she must report them on Modelo 720 (the Spanish return on assets held abroad), in the accounts block (code C), between 1 January and 31 March of the following year.
For accounts, the limit is measured in two ways, and it is enough for either total to exceed 50,000 €. Let us look at Margaret's figures at the end of 2025:
- Balance at 31 December: 47,000 €. It does not exceed 50,000 €.
- Average balance for the last quarter: 52,500 €, because in December she transferred 11,000 € to Spain for building work on the house.
- Result: the average balance exceeds the limit. She must file the 720 for all her accounts abroad.
It is a real example of how counter-intuitive this is: the year-end balance fell below the limit precisely because she took money out, and the average balance, which reflects the whole quarter, obliged her anyway. In later years she will only have to file again if either of those balances rises by more than 20,000 € compared with the last return. The blocks and thresholds are in the three blocks of the 720.
If the account is held jointly with her husband, each of them is obliged by their ownership. And if their son, resident in Madrid, appears as an authorised signatory on the British account, he too might have to file it.
The yearly file of a foreign pensioner
| Document | What for |
|---|---|
| Annual certificate for each foreign pension | Gross amount and tax withheld abroad |
| Document proving the origin of each pension | To classify it under the treaty |
| Foreign account statements from October to December | Balance at 31 December and average balance for the quarter |
| Exchange rate used | To convert each amount into euros |
| Certificate of tax residence in Spain | For the foreign payer, if it withholds |
If you receive a foreign pension and are not sure how it appears in your return, the pensioners form lets us see each pension, its origin and the account it is paid into.
If you have just arrived in Spain
The year of arrival has its own rules, because Spain does not split the tax year: if you turn out to be resident that year, you are taxed here on the pensions for the whole year, including the months before the move. It is a different scenario, which we cover in I am returning to Spain already retired.
The annual return for foreign pensions of Spanish residents, with the 720 for the accounts they are paid into, is part of what Salama Tax describes in its pensioners line, always in coordination with whoever handles the client's taxes in the paying country.