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Tenerife, the largest of the Canary Islands, has long been a popular destination for retirees looking for a near-perfect climate, beautiful beaches and coastlines, and a welcoming expatriate community. Areas such as Santa Cruz de Tenerife and Puerto de la Cruz are excellent places to live, with a blend of culture, modern amenities and superb living standards.

Recent data shows that over 11% of residents are foreign nationals, with around 45,000 expats relocating to Tenerife to work, live, or retire. While there is much on offer and living costs remain affordable, it is essential to plan carefully before an international move and make informed decisions about how to manage your pension, wealth, and assets.

Many expatriates assume that simply opening a Spanish bank account will suffice and discover pitfalls linked to their tax residency position, tax obligations against foreign-source income, or the realisation that a UK-based pension remitted in Sterling is worth considerably less than anticipated when subject to currency exchange rates and international transaction fees.

Let us provide some general guidance about the considerations to factor into your plans and why dealing with your finances beforehand is the best way to ensure a successful, happy, and financially healthy retirement in Tenerife.

Calculating Living Costs When Retiring to Tenerife

Looking at your property ownership or rental plans and the ongoing cost of living in Tenerife is a great place to start. If you have a clear idea of your monthly outgoings and the cost of buying or renting a home, you can compare this to your pension income, earnings, or investment returns to have confidence that you’ll be able to comfortably cover your outgoings.

The good news is that Tenerife is an affordable island destination, and most typical household costs are likely to be lower than you are used to. Below, we’ve compared averages in London and Birmingham with those in Santa Cruz to give you a rough idea.

Retirement in tenerife

Speak to an Adviser in Tenerife

While exact cost comparisons may vary depending on where you live now and where you plan to retire in Tenerife, average costs are significantly lower in the Canary Islands.

It’s also worth considering how your lifestyle may change. For example, if you plan to purchase a retirement villa and sell your UK property, will the proceeds of the sale cover 100% of the purchase value and leave you with a balance to invest or use as a cash contingency? Are you likely to need to budget for any major life events, such as university tuition for your children or contributing towards the cost of a wedding?

Looking forward at this stage is good practice since it allows you to forecast your ongoing living costs and verify whether your pension and other income will be sufficient to provide the retirement lifestyle you are looking forward to.

Handling Assets and Property When Retiring in Tenerife

Our next area to consider is the ownership and incomes arising from assets, including investment portfolios and real estate. There are usually three potential solutions for expats retiring in the Canary Islands:

  • Retaining assets or investments as-is and drawing on your income from Tenerife.
  • Transferring or reinvesting assets or investments into a Spanish or EU equivalent.
  • Restructuring your portfolio to align with your long-term objectives and risk appetite.

Of course, this subject is complex and multifaceted, and the right decisions may depend on the nature of your assets and how you plan to tap into them as part of your retirement wealth. However, as always, making clear judgments early on is wise.

Property ownership is a good example since many British retirees who head for warmer climes retain real estate in the UK. If you intend to live permanently or long-term in Tenerife, you will likely become a Spanish tax resident, which means you will be subject to taxation on your worldwide income and assets payable at the prevailing rates in Spain.

However, if you are a non-resident and split your time between Tenerife and the UK equally, your tax residency position may not be so straightforward. This factor would influence the taxes you are liable to pay on income generated by property or any other assets and your exposure to Capital Gains Tax on any profits realised.

Some investment products may also be unsuitable or less tax-efficient following an international move, so reviewing all your assets, funds and holdings will ensure you have plenty of time to decide how to move forward.

Planning for Retirement and Pension Income as a Tenerife Expatriate

Finally, your pension is likely to form a sizeable proportion of your retirement income, and you may have multiple pension schemes, such as:

  • The UK State Pension
  • A defined benefit workplace pension fund
  • A privately onward pension scheme

Just as with investments, there isn’t one defined answer since this will depend on variables such as the value of your pension fund, plans to draw on lump sums or schedule regular payments, and the type and terms of the pension scheme.

For example, transferring a UK-based pension to a Recognised Overseas Pension Scheme (ROPS) is one potential solution and enables you to access up to 30% of your pension as a tax-free lump sum. However, you might also determine that a Self-Invested Personal Pension (SIPP), which retains jurisdiction in the UK but is accessible from Tenerife, is better suited to your financial goals and onward tax planning.

Regardless of the decisions you make, inaction can be detrimental, and mean that the value of your pension is less than expected, the taxes you are liable to pay are higher than you have budgeted for, and your retirement lifestyle in Tenerife doesn’t live up to your expectations.

Working with a skilled, knowledgeable, and independent financial adviser from the outset will ensure you avoid any such obstacles and can proceed with confidence and clarity that your assets, pension, and investments are properly structured to offer maximum tax efficiency and a stable income.

For more information about budgeting for retirement in Tenerife and choosing the best way to manage your wealth, please get in touch with the local Chase Buchanan Wealth Management team here in Tenerife.

*Information correct as at May 2024