# Annuity



## CharlieMCFC (Jan 27, 2016)

Does anyone know if it's possible to use UK pension savings to buy an annuity that pays out in Euros? I want to insulate myself from currency fluctuations.


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## bob_bob (Jan 5, 2011)

You want to insulate yourself from currency fluctuations using the Euro as base funding? Good luck with that one.


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## CharlieMCFC (Jan 27, 2016)

bob_bob said:


> You want to insulate yourself from currency fluctuations using the Euro as base funding? Good luck with that one.


I don't understand your point Bob. Surely if I live in a country that has the Euro,
then having income in £s means I'm exposed to exchange rate changes, which I guess could be quite severe over say a 20 year period. But if my income is set in Euros, it'll be predictable. Or am I missing something?


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## bob_bob (Jan 5, 2011)

It will be predictable based on the €...not a good move IMHO.


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## Moyra (Aug 10, 2014)

Bob
Sorry but can you explain why you think someone should not invest in a Euro annuity vs Sterling annuity. 

Thanks
Moyra


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## Lynn R (Feb 21, 2014)

Do you think it's a good idea to buy an annuity at all, given that annuity rates are now at an all time low?

I transferred two small personal pension pots I had into a SIPP (Self Invested Personal Pension) because I didn't want to have to buy an annuity with them. I don't consider myself any kind of financial expert, but the value has increased by 22% in just under 2 years, and when I choose to I can take a 25% lump sum from the fund (tax free in the UK but not in Spain, unfortunately) and then take drawdown income from the fund as and when I want to. 

The money remaining in the fund can be left to my heirs in the event of my death, which is not the case with an annuity.


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## CharlieMCFC (Jan 27, 2016)

An interesting post Lynn, thank you. I didn't know that the 25% tax free rule didn't apply in Spain, so that sort of scuppers my plans anyway (use the 25% to pay towards the cost of a flat in Spain). But anyway, what you've said makes a lot of sense and I've been mulling it over for a few hours! I can't fault your logic, but I think it comes down to risk and there are 3 at play here:

1. Your SIPP may have increased in value by 22% over the last 2 years, but those gains can be reversed almost overnight with funds and shares. My pension fund has taken two 30% sudden drops over the decades. It recovers, but the recovery takes time. When a fund that you can't legally touch for 20 years drops in value by a third, it seems irrelevant. But when it's a fund that you're currently using as income, it becomes very relevant.

2. Back to where we started - currency fluctuations. Assuming that, like me, your fund is UK based but you're spending your money in Spain, then if the £ drops, so does your income. Clearly it's true the other way round too, but it's a gamble! With a Hard Brexit looming, I personally do not feel confident about the value of the £, so it does not to me feel like a risk worth taking.

3. If you live longer than you planned for, then you will run out of money.

A Sterling annuity eliminates risks 1 and 3 and a € one would eliminate all 3.


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## Lynn R (Feb 21, 2014)

CharlieMCFC said:


> An interesting post Lynn, thank you. I didn't know that the 25% tax free rule didn't apply in Spain, so that sort of scuppers my plans anyway (use the 25% to pay towards the cost of a flat in Spain). But anyway, what you've said makes a lot of sense and I've been mulling it over for a few hours! I can't fault your logic, but I think it comes down to risk and there are 3 at play here:
> 
> 1. Your SIPP may have increased in value by 22% over the last 2 years, but those gains can be reversed almost overnight with funds and shares. My pension fund has taken two 30% sudden drops over the decades. It recovers, but the recovery takes time. When a fund that you can't legally touch for 20 years drops in value by a third, it seems irrelevant. But when it's a fund that you're currently using as income, it becomes very relevant.
> 
> ...


You are right regarding the risk, of course. I have other final salary pensions which give me sufficient income, so I felt I could afford to take a bit of a gamble with the smaller pots and invested them in higher risk funds. I wouldn't have done that if I was entirely reliant on those funds for income.

Regarding your No. 3, though, if you take only the "natural yield" in drawdown from a SIPP, you won't run the risk of running out of money if you live longer than planned, and your original capital stays intact unless the funds suffer big losses. Which could happen, I agree.

By the way, if you take your 25% lump sum before you become tax resident in Spain (eg you could do that any time after 1 July in a given year and not be tax resident in Spain for that year) then you wouldn't have to pay tax on it. I'd already lived here for more than 8 years by the time I got mine, so I had a big bill to pay (sob).


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## The Skipper (Nov 26, 2014)

CharlieMCFC said:


> I don't understand your point Bob. Surely if I live in a country that has the Euro,
> then having income in £s means I'm exposed to exchange rate changes, which I guess could be quite severe over say a 20 year period. But if my income is set in Euros, it'll be predictable. Or am I missing something?


Depending on how much money you have to invest, there are ways to hedge against currency fluctuations and provide tax efficiency. You should take professional advice from an expert in Spanish financial matters.


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## CharlieMCFC (Jan 27, 2016)

So I now realise that when I start to dip into my pension pot (SIPP), I'll have to pay tax on it here in Spain (if only I'd known that before I became tax resident!) But does anyone know if that is still true if the money never leaves the UK? For example, I take out 25% of my SIPP - tax free in the UK - and give it to my kids, who live in the UK. Would I still be liable for tax in Spain on this gift? (Let's forget about the tax on UK gifts for now, to keep things simple!)


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## snikpoh (Nov 19, 2007)

CharlieMCFC said:


> So I now realise that when I start to dip into my pension pot (SIPP), I'll have to pay tax on it here in Spain (if only I'd known that before I became tax resident!) But does anyone know if that is still true if the money never leaves the UK? For example, I take out 25% of my SIPP - tax free in the UK - and give it to my kids, who live in the UK. Would I still be liable for tax in Spain on this gift? (Let's forget about the tax on UK gifts for now, to keep things simple!)


I would assume that it makes no difference as, in Spain, you're taxed on world-wide income.


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## Williams2 (Sep 15, 2013)

CharlieMCFC said:


> So I now realise that when I start to dip into my pension pot (SIPP), I'll have to pay tax on it here in Spain (if only I'd known that before I became tax resident!) But does anyone know if that is still true if the money never leaves the UK? For example, I take out 25% of my SIPP - tax free in the UK - and give it to my kids, who live in the UK. Would I still be liable for tax in Spain on this gift? (Let's forget about the tax on UK gifts for now, to keep things simple!)


Another way is to return to live in the UK again and then once you become fully tax resident in the UK and no
longer tax resident in Spain. Then and only then will you be able to take out 25% of the accumulated
money from your SIPP tax free.

Obviously there's nothing to stop you returning to Spain ( except whatever ramifications on right of residency
you might face upon your return following a Hard Brexit - the Tories most cherished dream ) once you
have secured your lump sum in the UK.

Naturally your mission in the UK would be made much easier if your only renting out your former home in
the UK, as it's little bother at all to serve notice on your tenants, that you want your house back for the
duration.
Of course it will take you a couple of years or more to accomplish your mission.


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## Lynn R (Feb 21, 2014)

Williams2 said:


> Another way is to return to live in the UK again and then once you become fully tax resident in the UK and no
> longer tax resident in Spain. Then and only then will you be able to take out 25% of the accumulated
> money from your SIPP tax free.
> 
> ...


I gave serious consideration to doing just that when I was due to receive my lump sum. However, I don't still own a property in the UK and concluded that the extra costs involved in having to rent somewhere to live, pay Council Tax, and the higher costs of living whilst there would make me little or no better off than just paying the tax. Plus I'd still have had the running expenses of my house in Spain to pay, and non-resident tax for the period I spent in the UK. And that was before the additional complication of Brexit had raised it's ugly head.

As to the OP's question, if you are already tax resident in Spain then it's where you are that matters (ie resident in Spain) and not where the money is, so it would make no difference if the money never left the UK. You are still liable for tax on all your world wide income, as Snikpoh says. Even if you gave the money away as a gift, you still have to have received it in the first place so giving it away is no different than spending it on something else, eg an expensive holiday.


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## CharlieMCFC (Jan 27, 2016)

Thank you everyone for your considered input. With Brexit looming, I've decided that I would rather pay the extra tax than increase the risk of losing my residency in Spain. I really do not want to live in the UK again. And if I tell you that most of my pension contributions went to Equitable Life, you'll release that we're not talking about a huge sum of money here!


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## Lynn R (Feb 21, 2014)

Lynn R said:


> I gave serious consideration to doing just that when I was due to receive my lump sum. However, I don't still own a property in the UK and concluded that the extra costs involved in having to rent somewhere to live, pay Council Tax, and the higher costs of living whilst there would make me little or no better off than just paying the tax. Plus I'd still have had the running expenses of my house in Spain to pay, and non-resident tax for the period I spent in the UK. And that was before the additional complication of Brexit had raised it's ugly head.


Plus, of course, if anyone who did own a property gave notice to their tenants so that they could live in the property themselves, they would lose the rental income (which they may be depending on for income) for the relevant period, so that would also have to be offset against the potential saving on the Spanish income tax liability on the lump sum.


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## Williams2 (Sep 15, 2013)

Lynn R said:


> I gave serious consideration to doing just that when I was due to receive my lump sum. However, I don't still own a property in the UK and concluded that the extra costs involved in having to rent somewhere to live, pay Council Tax, and the higher costs of living whilst there would make me little or no better off than just paying the tax. Plus I'd still have had the running expenses of my house in Spain to pay, and non-resident tax for the period I spent in the UK. And that was before the additional complication of Brexit had raised it's ugly head.
> 
> As to the OP's question, if you are already tax resident in Spain then it's where you are that matters (ie resident in Spain) and not where the money is, so it would make no difference if the money never left the UK. You are still liable for tax on all your world wide income, as Snikpoh says. Even if you gave the money away as a gift, you still have to have received it in the first place so giving it away is no different than spending it on something else, eg an expensive holiday.


I know one guy who did it by the simple expedient of living with he's parents for the duration of becoming resident UK
and Non Resident Spain before taking out he's 25 per cent SIPP tax free and then returning to Spain.
He sold he's house long before hes original move to Spain ( by the way )

Although he didn't have to think about the running expenses of he's place in Spain, as he was only renting at the time. Although when he got back he found a far better place to rent before buying he's own apartment in Spain.

Anyway as the OP said I think most Expats are digging in with a siege mentality of 'what we have in Spain, we hold' until all the uncertainty over Brexit and right of residence, employment, healthcare, etc is sorted out.


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