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TAXES

EXPLAINED: The changes to Spain’s annual income tax return in 2021

Spain’s annual income tax declaration for 2020 starts soon. Because of the pandemic, however, there are several changes you need to know about filing in 2021.

Published: 18 March 2021 12:01 CET
Updated: 21 March 2021 15:04 CET
EXPLAINED: The changes to Spain's annual income tax return in 2021
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Some of the main things that will affect this year’s Declaración de la Renta (tax return) – which starts on April 7th and ends on June 30th – involve those who have been receiving or who are currently on ERTE (temporary unemployment), those who are receiving the minimum vital income, and modifications in the contributions to pension plans.

How those on/have been on ERTE are affected?

Many people were on ERTE benefits during 2020 because of the lockdowns and closures, so it’s important to understand how the taxation of these benefits will affect your yearly income result.

One of the first things to note is that all those who received ERTE have been paid by more than one source. If you are paid by more than one source, the mandatory minimum to file a tax return falls from €22,000 per year when you have a single-payer, to €14,000 if the amount collected from a second source is more than €1,500.

The second point to know is about the taxation on benefits received, as it is likely that SEPE – the State Public Employment Service has not applied withholding on ERTE benefits.

Another new thing to be aware of is how ERTE has affected other certain benefits. For example, all those who have been paid ERTE will have been considered as unemployed, meaning that they will not be entitled to the maternity deduction or childcare assistance like they may have been in the past.

How are those on minimum vital income affected?

The minimum vital income was approved last May and anyone receiving it will also have certain tax implications. Article 33 of the Royal Decree states that anyone who receives this benefit must fill out the annual tax declaration. This means that some people who were not obliged to fill it out before, must now do so. 

How real estate capital is affected?

The real estate capital section of the annual return will now be easier to fill out because it will be presented in a simpler way. You will also be able to transfer returns on real estate capital from the previous year’s tax declaration to this year’s return.

Importing data from personal income tax books

Also new for 2021, is the ability for those taxpayers who have to keep an income tax record book to able to import the data to their income tax return, to make it easier to fill out. This should help a lot of people save time. One thing you have to be aware of though is that if you want to import it, the format of your personal income tax book may have to be adapted so that it can be imported by the services of the Tax Agency.

New additions on general income and savings income

This year, there will be new sections on general income and savings income. While last year, there were five sections, this year, another will be added for taxable bases that exceed €300,000. A rate of 24.50 percent will be applied to this.

New changes will also be made regarding income from savings. This is related to the collection of life insurance, interest on savings accounts and deposits, and the sale of shares or donation of goods. In this fiscal year, all those who exceed €200,000 will pay 26 percent tax.

Changes in contributions to pension plans

The last thing that changes in 2021 is do to with pension plans. Personal contributions to personal pension plans may not exceed €2,000, and those contributions from companies, may not exceed €8,000. The contributions that a spouse can make (up to €1,000 per year) or those from private long-term insurance (up to €2,000) have also been reduced.

READ ALSO: Do I really need to declare foreign assets to Spanish taxman by March 31st?

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For members

PENSIONS

What Brits should know about SIPP and QROPS pensions if moving to Spain

This Q&A offers some key information on SIPP and QROPS pension plans for British pensioners thinking of retiring in Spain, to help them decide which option is better for them.

Published: 9 May 2024 09:39 CEST
What Brits should know about SIPP and QROPS pensions if moving to Spain

Q: What are SIPPs?

A: SIPP stands for Self-Invested Personal Pension and is a UK-based pension plan. If you open an international SIPP then you can draw from this while you’re living in Spain.

Q: What is QROPS?

A: QROPS stands for Qualifying Recognised Overseas Pension Scheme. It allows you to transfer your UK pension out of the country. They are outside the UK tax regime, but must be inside the European Economic Area (EEA) if you want to avoid charges from HMRC. They also need to have similar rules and regulations to a UK-registered pension plan. Many QROPs from those wishing to retire to somewhere in Europe are transferred to Malta. As there is a dual tax treaty between Spain and Malta you will not be subject to Maltese tax when you draw your pension from there.

Q: What do I need to consider when opening a SIPP?

A: If you choose to open a SIPP, as it is self-invested, you will be responsible for managing it and making all the investment decisions. It is therefore best for those who already have some knowledge of investing or those who have the time and who are willing to put the work in to learn. It does, however, mean that you also have greater control and flexibility over your finances. You can choose to have the SIPP managed by a professional advisor, but of course this is an extra expense. Your SIPP could also be potentially subject to UK tax laws. 

Q: What do I need to consider when opening QROPs?

A: This is best for those wishing to cut all ties with the UK and permanently retire to Spain for the rest of their lives. You could lose UK domicile if you choose to do this and don’t have any other assets there, but it could mean you could also avoid UK inheritance tax. It’s also ideal if you wish your family also live outside of the UK

Q: I intend to return to live in the UK at some point in the future, which is best for me?

A: As SIPPs are UK-based, if you plan on returning there to live at some point during your retirement, that option is best. If you have QROPS, you could be subject to a large tax payment if you want to transfer it back to the UK.

READ ALSO: Six factors British people need to consider before retiring to Spain

Q: Which option will be cheaper for me?

A: SIPPs are generally cheaper than QROPs as you are managing it and investing yourself. If you choose someone else to manage it for you, however, this may not be the case.

Q: Will my SIPP be subject to tax in Spain?

A: Yes, if you are resident in Spain then you must follow Spanish tax regulations meaning that any withdrawals from SIPPs will be subject to income tax here. Pensions in Spain are subject to progressive tax rates ranging from 19 to 47 percent.  While SIPPs are also subject to UK tax rules, due to the double tax treaty between Spain and UK, you will not be taxed twice.

Q: Will my QROPS my subject to tax in Spain?

A: Yes, again if you’re resident in Spain you will be taxed on pension income. You must report income from a QROPS on your annual tax return. If you’re already a Spanish tax resident when you move your pension, it’s important to be aware that you’ll pay Spanish income tax on the whole value of the fund, therefore it’s much better to move it beforehand and then make your permanent move to Spain. 

Q: I want my pension to be paid in Euros to avoid exchange fees, which option will be best for me?

A: If you want to be paid in Euros, then QROPS will be the best as you will have completely transferred it out of the UK and into the EEA. This means that when you draw your pension, it will be paid out to you directly in Euros.

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