Tax return in Spain – IRPF

What is the tax return in Spain?

The tax return in Spain is a tax that levy on the worldwide income of all taxpayers (expats) residing in Spain – it is known as the Personal Income Tax (IRPF or Declaración de la Renta). It is a complex tax, and when income from other countries is taxed, it gets even more complicated, like for example, for British expats who are residing in Spain, as well as for the rest of expatriates from other countries, such as USA expats.

Through international double taxation agreements, the states establish mechanisms to avoid double taxation, taxpayers with income from abroad are entitled to the deduction for international double taxation that is regulated in article 80 of the Personal Income Tax as part of the (IRPF) tax return in Spain.

In this article, we are going to try to analyze the most common incomes that are taxed in Spain by expats and that are regulated through the Double Taxation Agreement signed between Spain and the United Kingdom and the Personal Income Tax.

Who has to submit a tax return in Spain?

Who has to submit a tax return in Spain

What determines whether an expatriate is regulated in article 9 of the personal income tax (IRPF), in general terms, is considered to be a permanent resident when one of the following requirements is met:

  • When your stay on national territory is longer than 183 days a year.
  • When your main economic interests/activities are located in Spain.
  • Unless proven otherwise, it will be presumed that the taxpayer has his habitual residence in Spain when, in accordance with the above criteria, the spouse, not legally separated, and the minor children who depend on them, habitually reside in Spain

Once the tax residence has been determined, the expatriate must pay taxes in Spain for all their worldwide income.

In general terms, they are obliged to declare the Income Tax Return in Spain:

  • Regarding income from work (which includes income as employees, and pensions received both in Spain and abroad) with a limit of 22,000 euros per year.
  • The limit is of 15,000 euros for those taxpayers who receive income from work or pensions that come from more than one payer, with certain exceptions that we will not go into detail due to its complexity or when even though the income comes from one payer, the payer is not obliged to apply withhold tax (foreign payer )
    For example, if a British citizen residing in Spain receives a State Pension of 10,000 euros and another Private Pension of 6,000 euros, or receives a single foreign pension of 16,000 euros they would be obliged to declare since the limit for the obligation to declare is 15,000 euros.
  • Rental income exceeding 1,000 euros per year.
  • Dividend income, interest and capital gains, and provided they are subject to withholding in Spain, with a limit of 1,600 euros.

From 2023, all those individuals who at any time during the tax period had been registered as self-employed.

Rosana Tejada, a tax advisor at Tejada Solicitors, and tax specialist for expats, reminds us that all expatriates who want to benefit from the international double tax deduction will be obliged to declare in any case.

It is recommended to file the tax return, even if it’s not mandatory, in order to benefit from possible deductions and exemptions in the future

Spanish Tax return: Deductions and allowances

Tax deductions

At the time to file the IRPF, the deductions represent the primary way to pay fewer taxes. In general terms we are going to name the deductions that we consider most important:

  • The purchase of the main residence: only for those who purchased 2013.
  • General reduction of €2,000 for income from work and pensions, that is, this reduction will apply to all expatriate residents with income from pensions or work, even if such income comes from other countries.
  • Reduction applicable to rental income generated both in Spain and abroad: As per Spanish tax legislation, local and international long-term property rentals are eligible for tax deductions. Common deductible expenses cover community fees, municipal taxes, insurance, water, electricity, mortgage interest, real estate agent fees, cleaning, laundry, maintenance, and repair costs. 

Concerning the applicable percentage for the tax deduction on rental housing, here’s the breakdown: 

– For rental agreements formalized before January 1, 2024, a 60% reduction in net rental income is applicable.

– For agreements formalized from January 1, 2024, the reduction is set at 50%.

In the instance of homes located in tensioned areas under the  new housing law (determined by the autonomous community where the property is situated) for rental agreements initiated from January 1, 2024:

· A 90% reduction is granted if the rent is decreased by at least 5% compared to the previous contract.
· A 70% reduction is granted if the property is being rented for the first time and the tenant is between 18 and 35 years old.
· A 60% reduction is applicable if the home has undergone rehabilitation in the two preceding years.

  • Working mothers: The mothers of children under the age of 3 can deduct the amount of 1,200 Euro per year in the IRPF or collect the anticipated monthly allowance of 100 Euro.
  • Pension plans.( Pension Scheme):

For expatriates residing in Spain who plan to redeem their pension plan, it’s important that if the redemption takes place in the form of capital, you can enjoy a 40% reduction on the benefits corresponding to the premiums paid prior to the year 2007. However, if you choose to surrender the pension plan in the form of an annuity, you will not be able to apply for this reduction.

If you retire in 2022, please note that if you do not redeem the pension plan in the form of capital before January 1, 2025, you will lose the 40% reduction.

If you choose to redeem the pension plan (or pension scheme) in a mixed form – partly in capital and partly in the form of income – the redemption of the capital is still eligible for the 40% reduction, as long as you comply with the following requirements.

You will be able to apply reductions for the contributions made to the pension plans, always by the quantitative limits established in the tax regulations.

  • Donations: There are deductions for contributions made to charities and political parties.
  • Transfer of heritage elements for people over 65 years of age:

Transmission of habitual residence for people over 65 years of age, the profit obtained is exempt from paying income tax.

In the event that at the time of the transfer only one of the spouses –who is the owner of the property– has reached 65 years of age, only 50% of the capital gains will be exempt.

When transferring to another property that is not your main residence, you will not be taxed on the gains obtained if the total amount is used to constitute an insured life annuity, with a maximum limit of €240,000, before 6 months have passed since the transfer of title.

  • Transfer of assets and liabilities for those under 65 years of age:

Transfer of habitual residence for people under 65 years of age; for Taxpayers who obtain a profit from the sale of their habitual residence do not pay income tax if they reinvest the amount obtained in the acquisition of a new habitual residence.

As an additional requirement, the total amount obtained from the sale of the property must be reinvested in the acquisition of a new principal residence within 2 years from the date of the transfer.

Per the tax regulations, to apply the tax exemptions described above, a habitual residence is understood to have been inhabited for at least 3 years before the transfer of the property.

  • Reinvestment exemption for the sale of your primary residence abroad.

According to tax consultation V2910-21 which was published on November 18, 2021, when an expat that has a residence abroad acquires tax residence for the current tax period (the calendar year in Spain), the capital gains is exempt from Spanish taxation from the sale of the property. This is only granted, though, if your primary residence is outside of Spain, and you bought a new home there (thus making it a reinvestment) at the time the property was transferred or on any day in the following two years.

Rosana Tejada is a tax advisor at Tejada Solicitors Law, and she advises that the Spanish tax agency will verify this type of exemption. To ensure a large tax saving, Rosana suggests cautious planning and following all the rules outlined for standard tax. If you wish to know more about this exemption please click here

  • Deduction for energy efficiency improvement works in homes.

 

  • Exemption of 50% on the transition of real estate acquired in 2012

The capital gains derived from the sale of urban properties located in Spanish territory that had been acquired from May 12, 2012, until December 31, 2012 (applicable to both residents and non-residents tax) are exempt by 50 %.

  • Reductions in capital gains on the transfer of real estate acquired before 1995.

For properties acquired before 1995 that you wish to transfer, Rosana Tejada – as an advisor at Tejada Solicitors – recommends keeping in mind your numbers to optimise the tax bill, as you could apply the abatements that reduce the capital gains obtained. The limit per taxpayer for this type of transfer is €400,000.

Exemption regulated in article 7.p LIRPF, of the income received from work carried out abroad, as long as certain requirements are met, with the maximum limit of 60,100 euros per year.

Personal Allowances

Individual: € 5,550

Taxpayers over 65 years old: €6,700 per year

Taxpayers over 75 years old: €8,100 per year.

For joint tax cases, this option is only possible for couples who form marriages and not for common-law couples, in addition to the previous allowances, we can add a reduction of 3,400 euros.

Need a professional consultation for your Tax Return 2023?

Capital Gains

Calculation of capital gains or losses on the transfer of shares and stocks listed on the stock exchange

Shares and stocks listed on the official market (stock exchange).  The gain or loss results from the  difference between the transfer value of the shares (the sale price minus the expenses incurred) and their acquisition value (the price paid at the time of purchase plus the expenses incurred in it). In a simplified way, the calculation of the gains for capital losses on the sale of shares that are listed on the stock exchange would be

Capital Gains/ Loss  =  (Sale Price (- expenses)) –  (Purchase Price +expenses)

For the calculation of the capital gain or loss, the FIFO method must be applied. First In, First Out  , if you acquired the shares of the same company on different dates and have sold only a part of them, it will be understood that you have sold the oldest ones first, that is, you must assign to the shares that you transmit the acquisition value of those you acquired in the first place.

Tax Return Rates Spain

The tax rates in Spain are different depending on the Autonomous Community where the taxpayer resides, in this case, we are going to inform about the case of taxpayers who reside in Andalusia.

2021 Tax Return Rate

For work, pensions, and rental incomes at the tax scale for 2021, a new tax rate of 24,50% has been introduced for taxable incomes from 300,000.00 euros.

For interests, capital gains, and other incomes at the tax scale for 2021, a new rate of 26% has been included for taxable incomes from 200,000.00 euros.

2022 Tax Return Rate

For taxpayers residing in Andalusia, the government of the autonomous community of Andalusia, using the Decree-Law 7/2022, of September 20, alleviates the effects of inflation, among other measures, by reducing the personal income tax rate.

Tax rates for General Income, as such work incomes, rental incomes for 2022 (unchanged for tax year 2023) is:

Andalucía tax rates for general Incomes 2022

Tax rates for investment incomes as such Interest, Capital Gains , the tax scale for 2022 is :

Tax rates for investment incomes as such Interest, Capital Gains , the tax scale for 2022

NEW: 2023 Tax Return Rate

For interests, dividends, capital gains, and other incomes at the tax scale for 2023, a new rate of 28% has been included for taxable incomes from 300.000,00 euros.

Tax rates for investment incomes as such Interest, Dividends, Capital Gains, the tax scale for 2023 is

2023 TAX RETURN RATE 2

Personal and family minimum

The personal and family minimum for Andalusia approved by the Andalusian Autonomous Community, are higher than those approved by the central government. These amounts are effective as of January 1, 2022

Taxpayer’s minimum

It will generally be €5,790 per year.

For taxpayers over 65 years of age, the minimum will be increased by €1,200 per year, i.e. €6,990. If the age of the taxpayer is over 75 years of age, the minimum will be increased additionally by €1,460 per year, i.e. in these cases, the amount will be €8,450.

Deadline of the Tax return in Spain

While the tax year in the United Kingdom runs from April 6 to April 5 of the following year, in Spain the tax year (tax year is the same as the calendar year) runs from January 1 to December.

Therefore, expatriates who resided in Spain during the year 2023 (and, of course, all other residents), the deadline for filing the Tax Return for 2023 begins on April 3 and ends on July 1, 2023.

Also, there is the possibility of being able to split the payment of the tax, without interest or surcharge whatsoever, that is, the amount of the tax debt resulting from your declaration of the Personal Income Tax can be divided into two parts:

The first, of a 60% of its amount, at the time of filing the statement, and the second, of the remaining 40%, which if you opted for direct debit will be charged to your account (direct debit) on November 5, 2024, inclusive.

What happens if I do not present the tax return in Spain?

If you do not file your return within the voluntary period established by the Spanish tax agency (normally from April 1st  to June 30th of each year) there are 2 scenarios:

Scenario 1. Submission after deadline but before Treasury request

Presentation of the declaration after the deadline but before the Treasury sends us the request (The most advantageous and least expensive). Payment of a late filing surcharge and interest, if applicable

  • The surcharge for late filing will be a percentage equal to 1 percent plus an additional 1 percent for each full month of delay in filing the tax return with respect to the end of the deadline established for filing and payment.
  • If the filing of the tax is made 12 months after the end of the filing deadline, the surcharge will be 15%. In these cases, in addition to the surcharge for late filing, late payment interest will be required.
  • All of this, without prejudice to the fact that the surcharge may be reduced by 25 percent of its amount in the cases and with the requirements provided for in article 27.5 of the General Tax Law

Scenario 2. Treasury requirement

When there is a requirement on the part of the Treasury because the declaration did not submit the established legal term, this scenario is the most burdensome, and the least advisable, and that every taxpayer resident in Spain should avoid:

  • This scenario can entail sanctions of between 50% and 150%. The applicable sanction depends on the severity of the infraction committed. The Spanish tax treasury classifies the sanctions as light, serious, or very serious depending on the amount stopped if there has been concealment or fraudulent means have been used.

In any case, Rosana Tejada always advises to choose scenario 1, since filing the declaration after the deadline but before the Treasury sends us the request, carries surcharges (between 1% and 15% plus interest) and no penalties (between 50% and 150%), which means that you can save money and unnecessary troubles. Keep in mind that there are information exchange agreements between different countries and that the Spanish Tax Treasury can obtain almost automatically both economic data and the origin of income obtained outside of Spain.

In the same way, we advise our readers that, to avoid sanctions with the Treasury that in many cases can be very high, if you do not know if you are obliged or not to file your income statement in Spain, contact a tax adviser so they can advise you correctly of all the tax implications that come with being a tax resident in Spain.

When obtaining income from abroad, we would like to highlight that some of the tax implications related to residency may be from Model 720 Declaration on Goods and Rights located abroad – you can read more about this matter in the following article, Spanish tax form 720 assets declaration model.

Tax return Spain

Submit your tax return with a legal representative

At Tejada Solicitors, we offer all expat residents in Spain online services, without the need for commuting to our offices. For correct advisory services and tax planning, we organize online meetings, we telework on your income statement, etc. If you are interested in our services, fill in the following form:

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How UK pensions and other incomes are taxed in Spain

For expats who reside in Spain that obtain Government Service Pensions in the United Kingdom such as, fire service, police, most teachers and others civil servant etc, this type of income will be taxed exclusively in the United Kingdom and are not directly taxable in Spain. However, under the double taxation treaty between the United Kingdom and Spain, this income is taken into account to determine the effective tax rate on your other taxable income. This means that your progressive tax rate will generally increase for the rest of your general income. This mechanism is called “exemption with progression”.

How UK pensions tax in spain
  • Other types of Pensions, such as State Pension, Private Pension, Scheme Pension, (Article 17 UK/Spain double tax treaty) are taxed exclusively in Spain.
  • Rental Incomes (Article 6 UK/Spain double tax treaty). In terms of income arising from the immovable property for real estate located in the United Kingdom “the same can be subject to taxation both in Spain and the United Kingdom.” That way, the resident taxpayer shall have “the right to apply the deduction for international double taxation in the IRPF in Spain.”
  • Dividends (Article 10 UK/Spain double tax treaty)

Dividends obtained from a British source can be subject to taxation in Spain according to the stipulations of domestic legislation.

If the United Kingdom is the State of residence of the society that pays for the dividends, the same can be subject to this taxation. But, if the recipient of the dividends is a resident of Spain “the taxes thus demanded in the United Kingdom shall have a maximum limit of 10% or 15% of the gross amount of the dividends.”

That way the taxpayer who is a resident in Spain shall apply up to said limit to the deduction for “international double taxation” in the IRPF statement.

  • Capital Gains (Articulo 13 UK/Spain double tax treaty). Regarding capital gains or wealth tax obtained through the disposal of personal and real property located in the United Kingdom that belongs to residents of Spain, just as it happens with shares, stock and other assets, the same can be subject to taxation both in Spain and the United Kingdom, and the taxpayer has the right to apply the deduction for international double taxation in the IRPF statement in Spain.
  • Interests (Articulo 11 UK/Spain double tax treaty). In general terms, the interests coming from the United Kingdom and whose beneficiary is a resident of Spain, can only be subject to taxation in Spain. But this is not always the case, there are special situations where this rule does not apply.
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