Spain and a US Annuity: How a Retiree Is Taxed, and What the US Adds

Written by Hans Goldstein, EA, licensed insurance agent · CA 4273294
Admitted to practice before the IRS
Updated October 2026

The honest answer on Spain has two halves: the income tax on a life annuity is light, and the wealth tax is the catch. Here is what the statutes say, and where nobody has written a rule yet.

How Spain taxes each check from a life annuity

Spain does not tax the whole payment. For an immediate life annuity that comes from a life insurance contract and was not inherited, Spain treats a fixed percentage of each year’s payments as income, set by your age when the annuity starts and never changed afterward: 40% under 40, 35% at 40 to 49, 28% at 50 to 59, 24% at 60 to 65, 20% at 66 to 69, and 8% above 70 (BOE, Ley 35/2006 (LIRPF) art. 25.3.a).2.º, checked 18 Oct 2026). The wording says “más de 70” for the last band and ends the one before at 69, so age 70 exactly is a gap in the text. Spanish adviser tables read it as 70 and over, but ask for it in writing if you start at exactly 70.

That percentage goes into the savings base. The statute’s own default scale is a state half of 9.5% to 15% plus a regional half on the same numbers, so 19%, 21%, 23%, 27% and 30% as income rises (BOE, Ley 35/2006 arts. 66 and 76, checked 18 Oct 2026); a region can set its own. There is also a personal allowance of €5,550, plus €1,150 if you are over 65 (BOE, Ley 35/2006 art. 57, checked 18 Oct 2026).

Open point. The rule is written for life insurance contracts, and it does not say where the insurer sits. I found no Spanish ruling that confirms a US-issued SPIA gets the age-based share, and the secondary summaries I checked are silent on foreign insurers. If Spain did not accept the share, the fallback would be much heavier. Get a Spanish adviser’s written view before you buy.

DIA and MYGA. A deferred income annuity (DIA) becomes the same thing once payments start, with one change: for a deferred annuity the statute adds the growth earned before payments began to the age percentage (BOE, Ley 35/2006 art. 25.3.a).4.º, checked 18 Oct 2026). A multi-year guaranteed annuity (MYGA) or any lump sum from a deferred contract is taxed when you receive it, as the amount received minus the premiums paid, not year by year as it grows (BOE, Ley 35/2006 art. 25.3.a).1.º, checked 18 Oct 2026). Whether Spain treats a US MYGA as a life insurance contract at all is not settled.

The treaty, and who taxes first

Article 20(2) of the US-Spain treaty says annuities received by a resident of one country are taxable only in that country. It defines an annuity as a stated sum paid periodically during a specific time period, with no word about life, so a life-only SPIA may fit there or fall under Article 23 (other income), which also gives the residence country the taxing right (IRS: US-Spain treaty Arts. 20(2) and 23(1), checked 18 Oct 2026). Either way I read the result the same: Spain taxes first. The 2013 protocol added a pension-fund paragraph to Article 20 and did not change paragraph 2 (Senate Foreign Relations Committee report on the 2013 protocol, checked 18 Oct 2026).

The saving clause (Article 1(3)) lets the US keep taxing you as a citizen. Article 24(3) then treats the income of a US citizen resident in Spain as arising in Spain “to the extent necessary to avoid double taxation,” so the US foreign tax credit (Form 1116) can absorb the Spanish tax. Spain also lets you deduct US tax actually paid on income the treaty lets the US tax (Article 24(1)(a)) (IRS: US-Spain treaty Arts. 1(3) and 24, checked 18 Oct 2026).

The US taxes only the gain share of each check, $10,000 a year here (IRC 72(b)). Spain taxes a share of the gross check: $8,400 at a 24% share. So the total is about the higher of the two taxes, not the sum. In my example the US tax is the higher one at both ages.

Wealth tax, exit tax and inheritance

Wealth tax. Spain taxes the net worldwide wealth of residents. A life insurance policy counts at its surrender value, and if you cannot surrender it, at the mathematical reserve; annuities that come from a life insurance contract are valued the same way (BOE, Ley 19/1991 art. 17, checked 18 Oct 2026). So a life-only SPIA does not leave the Spanish wealth base; it fades as the reserve is paid out. The state allowance is €700,000 per person unless the region sets another (BOE, Ley 19/1991 art. 28, checked 18 Oct 2026), and your main home is exempt up to €300,000 (BOE, Ley 19/1991 art. 4, nine, checked 18 Oct 2026). Regions change this. Madrid has had a 100% bonus on the wealth tax since 2008, but while the national solidarity tax on large fortunes exists that general bonus is not applied and a substitute bonus (the difference, if any) applies instead (Comunidad de Madrid: Patrimonio, checked 18 Oct 2026). Other regions, including Andalusia, have offered similar relief; confirm the current rule with a Spanish adviser. More on this in my Spain wealth tax page.

Exit tax. Spain taxes unrealized gains on shares when a resident of at least 10 of the last 15 years leaves, above €4 million of shares, or above 25% of one company worth over €1 million (BOE, Ley 35/2006 art. 95 bis, checked 18 Oct 2026). The rule is written for shares and participations, not an annuity contract. US citizenship-based tax stays with you wherever you live.

Inheritance tax on a US-resident beneficiary. Life insurance proceeds paid to someone other than the policyholder are taxable events under the Spanish inheritance and gift tax (BOE, Ley 29/1987 art. 3.1.c, checked 18 Oct 2026). A beneficiary who lives in Spain is taxed on everything received; a beneficiary who lives outside Spain is taxed on assets located or exercisable in Spain, and on life insurance proceeds only if the contract was made with a Spanish insurer, or in Spain with a foreign insurer operating there (BOE, Ley 29/1987 arts. 6 and 7, checked 18 Oct 2026). On that wording, a US-resident heir of a US contract is not reached by the insurance limb, but whether the general “exercisable in Spain” limb could catch it is not settled. If the heir does owe, the default state scale runs from 7.65% up to 34%, and a close relative gets a reduction of up to €9,195.49 on life insurance when the region sets none (BOE, Ley 29/1987 arts. 20 and 21, checked 18 Oct 2026). The Basque Country and Navarre run their own regimes (BOE, Ley 29/1987 art. 2, checked 18 Oct 2026).

The refund feature and your heirs

A cash-refund or installment-refund feature cuts the check by about 5% in my model (illustrative) and pays the unrecovered premium to a beneficiary. I found no Spanish ruling on whether that refund is treated as a return of capital for a living annuitant, so I will not state a rule. For the heir, the inheritance tax rules above are the ones that apply, and the wealth-tax value of a refund contract follows the same reserve rule in art. 17.1. Ask a Spanish adviser how the refund is reported.

Dollar risk

The annuity pays in US dollars, so your cost of living in euros moves with the exchange rate. Over the 20 years from 16 Oct 2006 to 9 Oct 2026, the Federal Reserve H.10 series shows euros per dollar between 0.62 (22 Apr 2008) and 1.04 (27 Sep 2022), and 0.89 on 9 Oct 2026 (FRED DEXUSEU, inverted to euros per dollar, checked 18 Oct 2026). On an illustrative $35,000 check that range is about €21,861 to €36,398 a year in euros, and €31,270 at the latest rate. This is not a forecast. A home or other assets in euros partly offset the swing, and a dollar annuity then acts as a floor.

Worked example: $500,000 life-only SPIA, US citizen resident in Spain

The US side is the same in every country. I use a non-qualified life-only single premium immediate annuity (SPIA) of $500,000, bought at 65, with an illustrative payout of 7.0%, which is $35,000 a year (illustrative, not a quote). Under IRC 72(b) the tax-free share of each check is the premium divided by the expected return. IRS Publication 939 Table V gives a multiple of 20.0 at age 65, so the expected return is $700,000 ($35,000 x 20.0) and the exclusion ratio is 71.4%. That makes $25,000 of each check tax-free and $10,000 taxable. The exclusion stops once the $500,000 premium is recovered, about year 20; after that the whole check is taxable (IRC 72(b)(2) caps the excluded total at the unrecovered investment) (26 U.S.C. 72(b), checked 18 Oct 2026) (IRS Pub. 939 Table V, checked 18 Oct 2026). At 70 the multiple is 16.0, the exclusion ratio 89.3% and the taxable part $3,750 a year.

The Spanish side uses the age shares above, with an assumed 21% savings rate (the second band of the default scale, income between €6,000 and €50,000) and an assumed 22% US federal rate on the gain share (IRS: for 2026 the 22% bracket starts at $50,400 for single filers, checked 18 Oct 2026). I ignore the euro conversion, the personal allowance and the wealth tax, and I use the same $35,000 check at 70, although a real payout would be higher at 70.

Because Spain’s tax is smaller, the treaty credit uses it up and the US tax decides the total. If Spain taxed more than the US does, the US tax would be wiped out and Spain’s bill would be the total.

MYGA or DIA instead. A MYGA has no exclusion ratio: the gain is taxable in the US as ordinary income when you withdraw it, and in Spain as a gain on receipt. A DIA changes the timing: nothing is paid for years, then the Spanish share (plus the earlier growth) and the US gain share apply to checks. Both are qualitative here because I have no verified Spanish ruling on a US contract.

How to use this

I am a US-licensed insurance agent and an Enrolled Agent, admitted to practice before the IRS. I can only help with a US annuity while you still live in the US, so buy before you move. I do not give Spanish tax or legal advice: get a local adviser’s written view on the open points above before you sign anything. Everything here is education, not tax advice, and every payout is an illustration, not a quote.

Frequently asked questions

Related reading

• Moving abroad on a fixed income: the hub
• Where a US annuity is tax-smart abroad
• How Europe taxes a US annuity
• Spain non-lucrative visa income requirement
• Spain wealth tax and a US annuity
• Wealth tax by country and US annuities
• Portugal: US annuity tax for retirees
• Italy: US annuity tax for retirees

Sources

• BOE: Ley 35/2006 del IRPF, arts. 25.3, 57, 66, 76, 95 bis
• BOE: Ley 19/1991 del Impuesto sobre el Patrimonio, arts. 4, 17, 28
• BOE: Ley 29/1987 del Impuesto sobre Sucesiones y Donaciones, arts. 2, 3, 6, 7, 20, 21
• IRS: United States and Spain income tax convention (Arts. 1, 20, 23, 24)
• Senate Foreign Relations Committee report on the 2013 US-Spain protocol
• Comunidad de Madrid: Patrimonio (regional bonus)
• 26 U.S.C. 72 (annuity exclusion ratio, 72(b))
• IRS Publication 939 (Rev. December 2025), Table V
• IRS: 2026 tax inflation adjustments (22% bracket)
• Federal Reserve H.10 via FRED: dollars per euro (DEXUSEU), pulled 18 Oct 2026