Retiring to the Canary Islands – Managing Your Pension Wealth and Retirement Assets

The Canary Islands are an idyllic retirement destination, with a warm, welcoming climate, low living costs, a vibrant expat community and the beaches and nature many aspire to live close to – and putting the right plans in place can make a significant impact on your long-term finances and lifestyle.

International retirement is complex, and understanding the taxes you’ll pay on your pension as a foreign national resident and the amount your retirement wealth will be worth is essential.

For many, the best starting point is to consult a seasoned wealth manager with in-depth knowledge of the systems and tax treatments applicable to their assets, property, and financial products. In the meantime, we’ve collated some useful insights in this guide.

The General Cost of Living for Retirees Relocating to the Canaries

Living costs in the Canaries can, of course, vary by location, although for many British citizens, a comfortable retirement budget will go significantly further.

In addition, the islands are often more affordable than mainland Spain, owing to factors such as the lower Special Tax Regime sales tax rate, which is 7% rather than the 21% payable on the mainland.

While only indicative, the latest average living costs are as follows, based on the larger cities and metropolitan areas:

As a comparison, living in Las Palmas de Gran Canaria costs on average €694 per month for a single person, excluding accommodation, and €745 in Santa Cruz de Tenerife.

Alternative locations, such as La Gomera, are often even more affordable, due to the rural pace of life. However, this may not appeal to retirees looking for nearby conveniences and a wider range of properties.

Claiming UK-Based Pensions After Retiring to the Canary Islands

Expats who choose to settle long-term in the Canaries retain the right to claim the UK State Pension, provided they have made sufficient National Insurance Contributions. This will also increase every year, as it does in all EU/EEA countries, thanks to the agreements in place.

However, retirees living year-round in the Canary Islands will likely have multiple sources of income and a range of pension products, which may need to be restructured, transferred, or adjusted to account for changes in circumstances and tax residency.

Leaving UK pensions as they are is an option, but one that should be approached with care. Some pension providers do not permit cross-border payments, and there may be tax implications and issues with the fluctuating value of pension benefits paid in a different currency.

Expat retirees can maintain a UK-based bank account for this reason, but that won’t mitigate the international transaction fees charged when transferring funds from Britain to Spain, nor will it make any difference to FX risks.

Transferring a Pension to the Canary Islands

There are various ways to manage cross-border pensions, and the best options will depend on your specific circumstances. For example, factors like the following will affect the pension transfer guidance we offer:

• The type of pensions you hold, whether government service pensions, which typically cannot be relocated, defined contribution or defined benefit schemes.
• Terms and flexibility to transfer or restructure pension funds, depending on the provider.
• The value of your pension, and how transferring or reinvesting funds might impact your retirement wealth.
• Tax exposure, with considerations such as the Overseas Transfer Charge (OTC), which can levy a steep 25% tax on pensions transferred outside the UK.

Options may include Recognised Overseas Pension Schemes (ROPS) and/or Self-Invested Personal Pensions (SIPPs), and it’s important to have personalised advice about which routes might be appropriate for you.

Paying Taxes on Retirement Income as a Canary Islands Expat Resident

Spanish law determines whether or not overseas expats are taxed as residents or non-residents. This depends on aspects like the amount of time you spend in the UK and in the Canaries, where your primary home and other assets are based, and whether you have economic or familial ties.

In most instances, if you live primarily or only in the Canary Islands, you’ll be taxed as a Spanish tax resident, which means that local taxes apply to all of your worldwide income and assets.

Planning for tax residency is important, as the taxes and rates you pay, the allowances that you can claim, and the correct application of double tax treaties will all influence your retirement wealth.

Assuming you are a tax resident, and you’re receiving pension benefits from an occupational or state pension fund, you’ll usually pay Spanish taxes at the municipal rates set by the Canary Islands, which also means a lower tax charge than if you were resident in many mainland regions.

Income tax rates begin at 18.5% on incomes up to €12,450, with an upper rate of 50.5% on taxable earnings over €300,000.

Timing Considerations to Make a Move to the Canary Islands More Tax-Efficient

The timing of your relocation will influence the taxes you are liable to pay, and we often encounter common mistakes that could have been easily avoided with the right advice.

One is assuming that tax-free 25% lump sum drawdowns apply in the Canaries as they do in the UK, which isn’t correct. Drawing a tax-free amount before moving means you’ll usually be able to do so without a tax liability, but attempting to access this lump sum as a Spanish tax resident means the full value will be exposed to tax.

Likewise, rules on ROPS transfers mean expats can avoid the steep OTC charge by transferring their pensions to a country where they are tax resident.

However, there is currently only one ROPS on the HMRC-approved list in Spain, offering a very limited choice. In addition, if you make a transfer retrospectively after becoming a tax resident, the Spanish authorities will apply a supplementary tax charge.

For more information about retiring in the Canary Islands and putting plans in place to secure your pensions and other retirement wealth, you are welcome to contact the Chase Buchanan team. You can also access other guides and advisory information via our Knowledge pages, including a detailed guide to Retirement in Tenerife.

© Chase Buchanan Private Wealth Management.
Chase Buchanan Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission with CIF Licence 287/15 and offers its services in the EU on a cross-border basis as per the provisions of MiFID.

Chase Buchanan Insurance Services, Agents & Advisors is authorised and regulated by the Cyprus Insurance Companies Control Service with License No 6883 and offers services in the EU on a cross-border basis as per the provisions of the Insurance Distribution Directive (IDD).

Investing in financial instruments involves risk and may not be suitable for all investors. The value of investments may go up as well as down and past performance is not a reliable indicator of future results. You may lose part or all of your invested capital.

*Information correct as at February 2026