The definitive tax guide for British expats in Spain — understand your obligations to both HMRC and the AEAT

The legal framework: the Spain-UK Double Tax Convention

British nationals in Spain are protected — and governed — by the Convention between the Government of the Spanish State and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains, signed in London on 21 October 1975 and entering into force on 18 July 1977 (BOE No. 270, 10 November 1977).

Unlike the many modern OECD-model treaties Spain has concluded, this Convention was negotiated in the mid-1970s and contains some provisions — particularly around pensions and source-country taxation — that require careful interpretation in the context of modern financial products. Crucially, the Convention survived Brexit unchanged: it is a bilateral instrument between two sovereign states and the UK’s departure from the EU had no effect on it.

Key citation: Instrumento de Ratificación del Convenio entre el Gobierno del Estado Español y el Gobierno del Reino Unido de Gran Bretaña e Irlanda del Norte para evitar la doble imposición, BOE-A-1977-14347; Protocol amending the Convention, London 1994, BOE-A-1994-28000.

The five core tax obligations for British nationals in Spain

1. Establishing Spanish tax residency

You become a Spanish tax resident if you spend more than 183 days in Spain in the calendar year (counted as days physically present, regardless of entry/exit dates) or if Spain is the base of your principal economic activities or interests. Either condition is sufficient — you do not need to meet both.

Once you cross the residency threshold, Spain taxes your worldwide income: UK bank interest, ISA income, SIPP drawdowns, rental income from a UK property, dividends from UK shares — everything. The Convention provides mechanisms to prevent real double payment, but only where both countries’ rules correctly interact. Getting this right requires active management, not passive reliance on treaty provisions.

2. UK ISAs in Spain: the tax-free myth

The ISA (Individual Savings Account) is the cornerstone of UK personal finance, offering tax-free growth and income on savings of up to £20,000 per year (2025/26 limit). In the UK, no income tax or capital gains tax applies to anything held inside an ISA.

In Spain, none of this protection exists. Spanish tax law does not have an equivalent of the ISA, and the 1976 Convention contains no ‘equivalent exemption’ clause that would carry UK tax-free status across the border. From your first day as a Spanish tax resident, every dividend payment, interest credit, and capital gain realised within your ISA is taxable in Spain as investment income (rendimiento del capital mobiliario or ganancia patrimonial) at the savings income tax rates: 19% on the first €6,000, 21% up to €50,000, 23% up to €200,000, 27% up to €300,000, and 28% above that (2026 scale).

Practical planning point: if you know you are moving to Spain and have significant unrealised gains in an ISA (particularly in a Stocks & Shares ISA), consider realising those gains before establishing Spanish tax residency. Once you are resident in Spain, the ISA gains you crystallise will be taxable; crystallising them while still UK-resident and within the wrapper incurs no UK tax and no Spanish tax.

3. UK pensions: State Pension, SIPP and QROPS

UK State Pension (New State Pension): The 2024/25 full New State Pension is £221.20 per week (£11,502 per year). Under Article 18.1 of the 1976 Convention, pensions paid in respect of past employment are taxable only in the State of residence of the beneficiary. As a Spanish tax resident, your State Pension is taxed exclusively in Spain — not in the UK. It is declared as rendimiento del trabajo (employment income) in your annual IRPF return (Modelo 100). HMRC typically withholds UK tax initially; you must proactively request exemption using Form Spain/Individual.

SIPP and other defined contribution schemes: While funds remain inside a SIPP (Self-Invested Personal Pension), no Spanish tax applies. When you start drawing down — taking lump sums or regular income — the amounts are taxable in Spain as rendimiento del trabajo. There is a 25% tax-free lump sum entitlement under UK law; its treatment in Spain depends on whether Spain must recognise this under the Convention (it generally does not, treating the full payment as Spanish-taxable income).

QROPS (Qualifying Recognised Overseas Pension Schemes): Since the 2017 UK Budget, transferring UK pension savings to a QROPS outside the EEA triggers a 25% Overseas Transfer Charge (OTC), collected by HMRC on the full transfer value. Following Brexit, Spain is no longer within the EEA for HMRC purposes. The ‘same country’ exemption (where both the member and the QROPS are resident in the same country) can potentially apply if you are already Spanish-resident and the QROPS is a Spanish-registered scheme, but this requires very careful structuring. Do not initiate a QROPS transfer without specialist cross-border advice.

4. The Beckham Law: a major opportunity for British professionals

The Beckham Law — formally the régimen especial de impatriados under Article 93 LIRPF, substantially expanded by Spain’s Startup Law (Law 28/2022, BOE-A-2022-21739) — allows qualifying individuals who relocate to Spain for work to pay a flat 24% tax rate on Spanish-source income up to €600,000 for a six-year period. Foreign-source income (UK investment income, foreign dividends, overseas capital gains) is completely exempt from Spanish tax during the regime.

For a British professional earning €150,000 in Spain, the Beckham Law saves approximately €34,500 per year compared to standard IRPF — over €200,000 across the full six-year period.

The 2022 reform extended eligibility beyond displaced employees to include remote workers (digital nomads working for UK employers from Spain), startup visa entrepreneurs, highly qualified professionals serving innovative companies, and company directors.

The application — Modelo 149, filed with the AEAT — must be submitted within six months of starting activity in Spain. This deadline is absolute and non-extendable; missing it permanently forfeits the regime for that relocation.

5. Modelo 720 and overseas asset disclosure

Modelo 720 is Spain’s annual informational declaration of overseas assets. Spanish tax residents must file it when they hold assets abroad exceeding €50,000 in any single category:

• Category 1: Accounts in foreign financial institutions (current accounts, savings accounts, ISAs, investment accounts)
• Category 2: Securities, rights, insurance policies, and annuities managed or held outside Spain
• Category 3: Real estate and rights over real estate situated abroad

For a typical British expat — UK current account, ISA portfolio, SIPP, and a UK property — the obligation to file almost certainly applies in multiple categories. The declaration is informational only (no additional tax is due on declaration) but non-compliance exposes you to formal penalties under Article 198 LGT, and the asset value may be deemed a taxable gain under the now partially-reformed penalty provisions.

The CJEU struck down the most punitive aspects (judgment C-788/19, 27 January 2022), and Spain amended the law in 2023, but the disclosure obligation is unchanged and late filing attracts fixed penalties per piece of information.

Brexit: what changed for British nationals in Spain

Working with BMC

BMC’s international tax team has extensive experience advising British nationals in Spain, managing both AEAT compliance and HMRC coordination under the 1976 Convention. We cover the full lifecycle: pre-relocation planning, Beckham Law applications, ISA and pension structuring, Modelo 720 preparation, IRPF annual returns, and Spanish Wealth Tax.

Contact the BMC tax team for a complimentary initial consultation on your specific situation.