Last Updated on 14th August 2025
UK tax reforms can sometimes seem like a distant problem for expats living overseas. However, recent changes and forthcoming reforms may have a far greater impact than expected, both for expats currently residing in Spain as tax residents, and those either considering a relocation or intending to apply for full tax residency.
While some of the announcements made in the last Autumn Budget also feel like old news, with further extensions to frozen tax bands unlikely to come as much of a shock, it’s also essential that foreign nationals understand the longer-term implications, especially around succession, inheritance and estate planning.
Our Spanish wealth management professionals have collated this guide to shed light on why Spanish residents, and those thinking about a move, need to be aware of UK tax changes and clarify the immediate and ongoing effects these may have.
The Switch From a Domiciliary System to a Residence-Based Regime
The first change to be conscious of is the move away from the longstanding domiciliary system, which took effect from April 2025. Previously, as most expats will know, their wealth planning would have involved the fact that most UK nationals would remain British domiciles, regardless of the amount of time they have lived abroad, unless they had taken fairly complex action to change this.
Now, the UK government will review expats’ residence status to decide whether each individual and estate is subject to UK inheritance tax (IHT) on their worldwide income and assets, or whether this tax applies only to any assets held within Britain.
- Once a British national relocates from the UK, they may remain subject to IHT for the next 10 years, levied against all wealth in any location – although this depends a little on the number of years they’d previously resided in the UK.
- After 10 years, the concept is that a British national has established themselves as a long-term overseas resident and is therefore not exposed to UK IHT. Note that this doesn’t remove any obligations to pay Impuesto de Sucesiones y Donaciones (ISD), the Spanish succession tax.
For most, the significant advantage is that this new regime enables them to make informed decisions, potentially selling or transferring UK assets, avoiding any future UK tax liability, and protecting their wealth for future generations.
The drawback is that succession plans that have been in place for some time may now need to be reviewed, and timelines for relocation may be adjusted to provide the best possible likelihood of meeting the 10-year overseas residency threshold.
What the Removal of Overseas Transfer Charge Exemptions on Pension Transfers Means for Spanish Expats
The next reform is far less beneficial because the Overseas Transfer Charge (OTC) levies a 25% tax rate on UK pension funds transferred overseas, but until now, transfers to funds in the EU and EEA, primarily ROPS, were exempt.
Unfortunately, from October 2024, all pension transfers may be subject to the 25% tax. This means that prospective expats intending to transfer a UK-based fund to an EU scheme, with the vast majority choosing HMRC-approved schemes in Malta or Gibraltar, will now attract a significant tax burden.
Expats already living in Spain remain exposed to the tax, because exemptions only apply if the fund holder is a resident in the country to which the transfer is made. Because there aren’t any schemes in Spain itself, this allowance doesn’t apply.
Likewise, Spanish residents who decide to transfer a UK pension scheme into an EU ROPS after becoming tax residents will need to account for the considerable tax liabilities that they will need to pay in the form of Spanish income tax.
How Incorporating UK Pensions Into IHT Calculations Impacts Spanish Expats
The third meaningful reform affects all expats who hold UK pension funds, irrespective of whether they have lived in Spain for 10 years or longer.
As of April 2027, pension funds and any other products such as life insurance policies with a death benefit payable to nominated beneficiaries will be included in the scope of IHT.
This puts an even greater onus on expats to think about how they manage UK-based products and pensions, albeit with the complication of the potential 25% taxation linked with transferring those assets to Spain.
Other Reforms to UK Income Taxation Affecting Expats Living in Spain
We mentioned earlier the continuation of frozen income tax thresholds. Although there has been a commitment to extend this no later than April 2028, the expectation is that more UK taxpayers will fall into higher tax brackets in the three intervening years.
Additional changes that may influence expat wealth and financial planning include:
- Increases to UK capital gains tax rates from October 2024 to 18% and 24%, alongside the tapered cut in CGT allowances from £12,300 to £3,000
- Freezes to maximum ISA savings contributions, now fixed at £20,000 until 2030.
- Higher stamp duty charges on second homes, rising from 3% to 5%
- A continued freeze on the IHT nil-rate band until April 2030, which will have remained at £325,000 for over two decades
All of these changes may have an impact, either on immediate financial plans or longer-term succession planning. With such a broad range of reforms being introduced within a short period, we strongly advise all Spanish expats to contact our local Chase Buchanan Private Wealth Management teams for further, more personalised guidance.
Understanding Spanish 2025 Reforms to Immigration Laws
We’ve covered the major tax reforms in the UK, but these have also occurred alongside changes to Spanish legislation, specifically regulations around immigration and the visa application process. For the most part, these changes are designed to make it easier for undocumented migrants to apply for residency, with reduced application periods from three or five years to two.
However, the relaxation of rules also means expats may now find it easier to renew residency visas and work permits, and those planning a move can consider new residency categories such as the Spain Jobseeker Visa, introduced this year.
As always, speaking with an experienced adviser with up-to-date knowledge of the immigration and taxation regulations in both the UK and Spain is ideal, ensuring you make clear decisions about your residency, finances and long-term wealth.
All investments carry risk, including the potential loss of capital. You should carefully consider whether investing is suitable for you, taking into account your personal circumstances, financial situation, and risk tolerance.
*Information correct as at August 2025
