For UK expatriates living in Spain, your private pension is often your most significant liquid asset.
Yet, when it comes to estate planning, it is also one of the most misunderstood. The intersection of UK pension legislation and Spanish tax law creates a complex web that, if ignored, can severely dilute the wealth you pass on to your loved ones.
At Private Client Consultancy, the most common question sitting across the desk from our clients is: “What actually happens to my private pension when I die?”
When you pass away as a UK resident in Spain, a specific sequence of legal and financial events is triggered across two different tax jurisdictions.
Here is exactly what happens to your private pension funds.
The immediate outcome depends entirely on the type of pension you hold.
For the rest of this sequence, we will focus on what happens to a Defined Contribution pension, as this is where cross-border estate planning is most critical.
Your pension does not automatically pass to your spouse or seamlessly drop into your estate. Legally, the funds sit within a trust.
Upon your death, the scheme administrators (the trustees) assume control.
They will look for your most recent Expression of Wish or Nomination Form. While the trustees have the final discretion, they rely heavily on this document to distribute the funds.
If this form is outdated (for instance, if it pre-dates a move to Spain, a divorce, or a remarriage), the trustees may distribute the funds in a way that goes against your current wishes or tangles the money in local Spanish forced heirship laws.
Before the funds can leave the UK, HMRC dictates the baseline tax treatment based on your age at the time of death:
Historically, pensions bypassed your estate and were shielded from UK Inheritance Tax (IHT).
This is about to change.
From 6 April 2027 (subject to final legislation), most unused Defined Contribution pension funds are expected to be included within the scope of UK Inheritance Tax.
This could mean the value of unused pension funds becomes subject to UK IHT at up to 40%, depending on available nil-rate bands, exemptions (including spouse exemption), and overall estate structure.
This is where the most costly mistakes are made. Just because a pension is passed “tax-free” under UK rules (e.g., dying before age 75) does not mean it is tax-free in Spain.
Spain does not mirror UK pension legislation.
When your Spanish-resident spouse or children receive the funds, the Agencia Tributaria (Hacienda) will assess the receipt of those funds.
Depending on how the pension was structured and how the money is drawn (as a lump sum or regular income), your beneficiaries will likely face either Spanish Inheritance Tax (Impuesto sobre Sucesiones y Donaciones – ISD) or Spanish Income Tax (IRPF), depending on whether the benefit is treated as succession or as pension income.
Because Spanish inheritance tax is regional, the exact liability will depend heavily on whether you live in AndalucÃa, Valencia, Madrid, or elsewhere.
You can calculate you IHT obligations in Spain for free here.Â
Yes, it is highly likely.
Even if the pension is passed tax-free under UK rules (e.g., dying before 75), a spouse resident in Spain may be liable for Spanish Inheritance Tax (ISD) or Income Tax (IRPF), depending on how the benefit is structured and withdrawn.
It is a document instructing your pension trustees who should receive your funds.
If you live in Spain and your form is outdated, the funds could be paid into your general estate, potentially tangling them in Spanish forced heirship rules and triggering unnecessary taxation.
Yes.
Modern Defined Contribution pensions offer excellent intergenerational planning.
You can nominate children or grandchildren, allowing the funds to cascade down generations.
However, you must now factor in the planned 2027 UK IHT changes.
Restructuring your pension into an International SIPP or a Qualifying Recognised Overseas Pension Scheme (QROPS) can offer significant estate planning advantages, including multi-currency options and better alignment with Spanish tax systems.
However, transfers may trigger a 25% Overseas Transfer Charge unless specific residency and scheme conditions are satisfied.
Always seek regulated, cross-border advice.
Before making any assumptions about your retirement savings, it is vital to acknowledge the reality of holding a UK pension while living in Spain:
Your private pension is the culmination of a lifetime of hard work. It is meant to provide you with a comfortable retirement and leave a lasting, protected legacy for those you love.
Assuming that UK tax rules will neatly apply to your beneficiaries while you are living in Spain is one of the most expensive mistakes an expatriate can make. The landscape has never been more hostile to the unprepared: with the introduction of the LSDBA, the aggressive complexities of Spanish regional tax, and the planned 2027 UK IHT reforms, navigating this alone is no longer a viable option. Inaction is simply a choice to let the taxman become your largest beneficiary.
Take Control of Your Legacy Today You cannot afford to leave the destination of your wealth to chance. At Private Client Consultancy, our regulated advisers specialise exclusively in cross-border financial planning for UK expats in Spain.
Contact us today for a robust, structured review of your UK pension and estate plan. We will ensure your wealth aligns perfectly with both UK and Spanish tax efficiencies, securing your legacy exactly as you intend. Professional advice should always be sought before taking action.
UK State Pension update for EU residents
From April 2026, the rules around voluntary National Insurance contributions for people living outside the UK are changing.
If you live in the EU and expect to rely on the UK State Pension, it may be worth reviewing your position while current options remain available.
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