British expats in Spain could lose one of their biggest inheritance tax advantages

For thousands of British residents who built a new life in Spain, their UK pension was meant to provide security in retirement and support for their families in the future. But a major change coming into force in April 2027 could alter what happens to those savings after they die. A pension that many expats believed would pass to loved ones outside inheritance tax rules could soon be treated differently by the UK tax authorities.

The change will apply to deaths on or after April 6 2027 and will bring certain UK-held pensions into the inheritance tax system. The pension itself will not lose value, but the way it is viewed for inheritance tax purposes will change. For British residents in Spain who still hold pensions in the UK, the countdown has begun.

The rule change many expats may not have seen coming

Moving to Spain does not automatically remove a person from UK inheritance tax rules. Many British nationals who retire abroad assume that becoming Spanish residents ends their financial obligations to Britain. However, the UK’s inheritance tax system looks at factors beyond where someone currently lives.

The government announced the pension changes in the 2024 Autumn Budget, stating that pensions were originally designed to provide income during retirement but had increasingly become a way of transferring wealth between generations. Currently, pensions are generally considered outside a person’s estate when they pass away. From April 2027, that treatment will change, meaning some UK pensions could be included when inheritance tax is calculated.

To understand what the changes could mean for British residents living in Spain, we spoke to Chris Ball, a CEO and expat financial planning specialists who works with over 10,000 pensioners worldwide. He told Euro Weekly News: “One of the biggest changes Brits living in Spain need to be aware of is that from April next year, a UK-held pension could fall within the UK inheritance tax net, even if you’ve never set foot in Britain again after moving abroad.”

The 10-year rule that could affect expats

Since April 2025, HM Revenue and Customs has based inheritance tax assessments for people living abroad on long-term residence rather than domicile status. A British national can be considered a Long-Term Resident (LTR) of the UK if they have been a UK tax resident for at least 10 of the previous 20 tax years. For those who meet that threshold, worldwide assets may remain within the UK inheritance tax rules. This means a move to Spain does not necessarily remove exposure to UK inheritance tax.

Chris also explains: “After 10 years away from the UK, you will lose your LTR status and non-UK assets will drop out of scope, however, UK assets, including UK-regulated pensions, can remain within the rules”. That distinction could be significant for British retirees in Spain who have spent years building pension savings in Britain before moving abroad.

Could pension holders take action before 2027?

For some expats, accessing pension funds before the new rules take effect could become part of their planning. Under the double taxation agreement between the UK and Spain, some individuals may be able to draw down pension funds in a tax-efficient way. However, experts warn that pension withdrawals should not be made without professional advice, as tax treatment can vary between the two countries.

British nationals considering this route are advised to seek guidance from a UK Chartered Tax Adviser as well as Spanish tax support. Another possible option could involve taking pension income and gifting money to family members. For some people, this could reduce future inheritance tax exposure while allowing them to support loved ones during their lifetime. However, gift rules depend on a person’s residency status and where their assets are held. For those who are not Long-Term Residents, gifts involving non-UK assets may not fall within UK inheritance tax rules.

Why the deadline matters for British families in Spain

The biggest concern for many expats is not the pension they receive during retirement, but what happens to the money they leave behind. With the April 2027 changes approaching, British nationals living in Spain with UK pensions have limited time to understand how the new rules could affect their families.

Financial planning decisions involving two countries can be complicated, and advisers warn against making rushed choices as the deadline approaches. The impact will depend on individual circumstances, including how long someone lived in the UK, when they moved abroad, the size of their pension and what other assets they own. For some British expats, the change may have little effect. For others, a pension that was built over decades as a financial safety net could become part of a very different inheritance calculation after April 2027.