Living in Spain does not necessarily mean your estate is free from UK Inheritance Tax. And with significant changes coming into effect in April 2027, many British families may find that assets previously treated favourably for inheritance tax purposes could now increase their potential tax liability.
If you are a British national enjoying retirement on the Costa Blanca, or you own property, investments or pensions in both Spain and the UK, now is a good time to review your estate planning.
The aim is not to make rushed financial decisions. It is to understand what might happen to your assets and how much of your wealth your loved ones could ultimately inherit.
What Is Changing to UK Inheritance Tax in 2027?
Inheritance Tax (IHT) is a tax that may be charged on a person’s estate after death.
The standard UK Inheritance Tax rate is currently 40% on the portion of an estate exceeding the available tax-free allowances.
The standard nil-rate band is £325,000, although additional allowances and exemptions may apply depending on your family circumstances, property ownership and marital status.
The major change takes effect on 6 April 2027, when most unused UK pension funds and certain pension death benefits will be included in the value of an estate for Inheritance Tax purposes.
Previously, many people considered their private pensions a useful way to pass wealth to their children or grandchildren.
The new rules mean that this strategy may need to be reconsidered.
A Simple Example: How Could Your Family Be Affected?
Imagine a British retiree living in Alicante who owns:
- A Spanish property worth £300,000.
- Savings and investments worth £300,000.
- An unused UK private pension worth £200,000.
Their combined wealth totals £800,000.
Until now, certain unused pension funds could be excluded from the UK Inheritance Tax calculation.
From April 2027, if the estate falls within the scope of UK IHT, the additional £200,000 pension could increase the taxable estate and potentially the amount payable by the family.
The actual tax would depend on the available allowances, exemptions and individual circumstances.
The important question is: do you know how much of your estate your beneficiaries would actually receive after tax?
Do British Expats Living in Spain Still Pay UK Inheritance Tax?
This is one of the most common questions among British residents in Alicante, Jávea, Torrevieja and other areas of the Costa Blanca.
Since 6 April 2025, the UK has applied a residence-based system to determine when overseas assets may fall within the scope of Inheritance Tax.
Broadly speaking, someone may qualify as a long-term UK resident if they have been UK tax resident for at least 10 of the previous 20 tax years.
Importantly, moving to Spain does not always remove your worldwide UK Inheritance Tax exposure immediately.
Depending on your residence history, the UK may continue to treat you as a long-term resident for several years after leaving, potentially up to ten tax years.
This means two British retirees living next door to each other in Spain could face completely different inheritance tax situations.
One might still have worldwide assets within the scope of UK IHT, while the other may only be exposed in respect of certain UK-based assets.
Your individual residence history and the date you moved abroad can make a considerable difference.
Seven Questions Every British Resident in Spain Should Ask About Their Estate
Before changing investments, making gifts or updating your will, it is worth considering the following questions.
1. How Much Is My Entire Estate Worth?
Many people think primarily about their family home when considering their inheritance.
However, your estate may also include property in other countries, savings, investments, business interests, life assurance and relevant pension funds.
Understanding the total value of your worldwide assets is the starting point for identifying potential tax exposure.
2. Where Do My Beneficiaries Live?
Leaving assets to a child living in Spain may have different tax consequences from leaving them to someone resident in the UK.
Spanish inheritance tax depends on factors including the beneficiary’s residence, their relationship to the deceased and the regional rules that apply.
For example, the Valencian Community provides a 99% inheritance tax relief on the relevant tax liability for qualifying transfers to close family members, subject to legal conditions.
However, favourable Spanish inheritance tax treatment does not automatically remove a potential UK IHT liability.
3. Have I Reviewed My UK Pensions?
If you hold a SIPP, personal pension or workplace pension, the 2027 changes make it particularly important to review your arrangements.
You should consider the value of your pension funds, your nominated beneficiaries and how the new rules could affect your family.
It is equally important to understand the Spanish tax implications before making withdrawals.
Taking money out of a UK pension to reduce a future inheritance tax bill could create an immediate Spanish income tax liability.
Any changes should therefore be assessed from both a UK and Spanish tax perspective.
4. Should I Keep My Savings and Investments in the UK?
Holding British bank accounts or investments is not necessarily a problem.
However, it is worth reviewing whether keeping substantial assets in the UK still meets your financial and estate-planning objectives.
Certain UK-based assets may remain within the scope of UK Inheritance Tax even after you are no longer considered a long-term UK resident.
Moving or selling investments may also trigger capital gains tax or other costs.
The right decision depends on the type of assets involved, your tax residence and your long-term financial needs.
5. Would Giving Assets to My Children During My Lifetime Help?
Some families consider gifting money or property to children and grandchildren rather than leaving everything through their estate.
Lifetime gifts can be useful in certain circumstances, but they require careful planning.
Under UK rules, some gifts may still be relevant for Inheritance Tax if the donor dies within seven years. Other arrangements, particularly where the donor continues to benefit from the asset, may remain within the taxable estate.
Spanish gift tax and potential capital gains tax must also be considered.
And remember: making a genuine gift generally means giving up ownership and control.
Your financial security in retirement must remain a priority.
6. Are My Spanish and UK Wills Up to Date?
If you own assets in Spain and the United Kingdom, reviewing your wills is an essential part of estate planning.
It is important to ensure that the provisions are consistent and do not unintentionally conflict.
You may also need to review powers of attorney, asset ownership and beneficiary nominations for pensions and insurance policies.
An up-to-date will can make the inheritance process easier for your family, although it does not automatically reduce your tax liability.
7. Would My Family Have Enough Money to Pay Inheritance Tax?
A valuable estate does not always mean readily available cash.
Your beneficiaries might inherit a property and investment portfolio but still need funds to cover taxes and inheritance-related expenses.
Depending on your circumstances, appropriate financial planning or life assurance may help provide the liquidity needed to protect your family’s assets from a forced sale.
Could My Family Pay Inheritance Tax in Both Spain and the UK?
Yes. Depending on the circumstances, an estate may create inheritance tax obligations in both countries.
Spain and the United Kingdom do not have a specific bilateral inheritance tax treaty.
However, both countries have domestic provisions that may provide relief where tax has been paid on the same assets.
The outcome depends on the location of the assets, the tax residence of the people involved and the applicable rules.
This is why cross-border estate planning requires a coordinated understanding of both UK and Spanish tax law.
Reviewing one country in isolation may lead to incomplete or unexpected results.
What Should You Do Before April 2027?
The forthcoming changes offer a useful opportunity to review how your estate is organised.
Start by preparing an overview of your assets, including properties, bank accounts, investments, pensions and insurance policies.
Identify where those assets are located and who is expected to inherit them.
Then consider three essential questions:
- What UK and Spanish taxes might arise if I died with my current estate structure?
- What taxes and costs might be triggered if I changed that structure today?
- Which options would protect my beneficiaries without compromising my own income and financial security?
Depending on the answers, you may wish to explore updated wills, changes to investment arrangements, pension planning, lifetime gifts or solutions to provide inheritance tax liquidity.
In some cases, making changes may be beneficial. In others, keeping existing arrangements and reviewing them periodically may be the most appropriate approach.
Good estate planning is not simply about reducing tax. It is about protecting your family while maintaining financial peace of mind throughout your retirement.
Protect Your Wealth and Your Family’s Future
The changes to UK Inheritance Tax make reviewing your estate planning particularly important if you live in Spain and maintain financial connections with the United Kingdom.
Your residence history, family circumstances, pensions, assets and beneficiaries all influence the outcome.
At Pellicer & Heredia, our international legal and tax planning helps British residents in Spain understand their cross-border estate planning obligations and identify appropriate options for protecting their wealth.
Taking professional advice before making financial decisions can help you avoid unnecessary risks and prepare your family for the future.
Are you a British resident in Spain with UK pensions, property or investments? Contact Pellicer & Heredia to arrange a personalised review of your inheritance and estate-planning position.
This article is for general information purposes only and does not constitute individual legal or tax advice. Tax liabilities and available planning options depend on personal circumstances and applicable legislation.
FAQs about UK Inheritance Tax changes in 2027
When do the UK Inheritance Tax pension changes come into force?
The main change takes effect on 6 April 2027. From that date, most unused UK pension funds and certain pension death benefits will be included in the value of an estate for Inheritance Tax purposes.
Does moving to Spain end my UK Inheritance Tax exposure?
Not always immediately. Since 6 April 2025 the UK applies a residence-based system. Someone who has been UK tax resident for at least 10 of the previous 20 tax years may continue to be treated as a long-term UK resident for several years after leaving, potentially up to ten tax years.
What is the UK Inheritance Tax rate?
The standard rate is currently 40% on the portion of an estate exceeding the available tax-free allowances. The standard nil-rate band is £325,000, although additional allowances and exemptions may apply depending on your family circumstances, property ownership and marital status.
Is there an inheritance tax treaty between Spain and the UK?
No. Spain and the United Kingdom do not have a specific bilateral inheritance tax treaty. However, both countries have domestic provisions that may provide relief where tax has been paid on the same assets.
Should I withdraw money from my UK pension before April 2027?
Not without assessing the consequences first. Taking money out of a UK pension to reduce a future inheritance tax bill could create an immediate Spanish income tax liability, so any change should be reviewed from both a UK and Spanish tax perspective.
When do the UK Inheritance Tax pension changes come into force?
The main change takes effect on 6 April 2027. From that date, most unused UK pension funds and certain pension death benefits will be included in the value of an estate for Inheritance Tax purposes.
Does moving to Spain end my UK Inheritance Tax exposure?
Not always immediately. Since 6 April 2025 the UK applies a residence-based system. Someone who has been UK tax resident for at least 10 of the previous 20 tax years may continue to be treated as a long-term UK resident for several years after leaving, potentially up to ten tax years.
What is the UK Inheritance Tax rate?
The standard rate is currently 40% on the portion of an estate exceeding the available tax-free allowances. The standard nil-rate band is £325,000, although additional allowances and exemptions may apply depending on your family circumstances, property ownership and marital status.
Is there an inheritance tax treaty between Spain and the UK?
No. Spain and the United Kingdom do not have a specific bilateral inheritance tax treaty. However, both countries have domestic provisions that may provide relief where tax has been paid on the same assets.
Should I withdraw money from my UK pension before April 2027?
Not without assessing the consequences first. Taking money out of a UK pension to reduce a future inheritance tax bill could create an immediate Spanish income tax liability, so any change should be reviewed from both a UK and Spanish tax perspective.
