Join the La Marina forum

Join the La Marina forumMy name's Jan and this is my website all about La Marina in Spain. Register now for free to talk about Taxes in La Marina: Suma, NIE and general tax advice and much more!

Residents' Income Tax - Allowances

Whatsapp

Posted: Sat Jul 15, 2017 10:29am
13 replies338 views11 members subscribed
  • Page 1 of 2:
  • 1
  • 2
jimtaylor

jimtaylor

Forum Ambassador for Almoradi

Posts: 705

Location: Almoradí

696 helpful posts

This is where Spanish taxation starts to get interesting, because there are allowances that the UK do not have. Also, the allowances are applied in a different manner than they are in the UK.

Personal allowances:

The basic personal allowance is €5,550.

If you’re over 65 on the 31st December, you get an extra €1150.

If you’re over 75, you get an extra €1400, on top of the €1150.

If you are doing a joint return, and you’re both over 65, then you get an extra two times €1150; if one of you is over 65 & one of you over 75, then you get an extra two times €1150 plus €1400.

By over 65, I don’t mean you don’t get the extra allowance until you’re 66. If your birthday is 30th December, then on the qualifying date of 31st December, you’ll be one day older than 65 and therefore qualify for the extra.

Married couple’s allowance:

This is another area where Spain is different. If you’re married, you can only claim the married couple’s allowance if you file a joint return, but you also have the option to each file separate returns.

The additional deduction for married couples' returns (declaración conjunta) is €3,400.

On the face of it, if you file separate returns, then you each have €5,550 personal allowance, but if you file a joint return then you only get one €5,550 + €3,400, so it would seem that you’d be better off filing separate returns, and this is usually very much the case. However, if one of you has noticeably more income than the other, then by the time the (rather convoluted) calculations have been carried out, it might actually be better to opt for a joint return.

Calculating the tax of a couple is not as easy as adding one single allowance of €5,550 to the married couples allowances of €3,400 to give a combined allowance of €8,551 against their joint income.  The allowance is given in two stages so that only the married couple’s allowance reduces the couple's liability to the higher rate tax bands.

After working out their total tax bill as two individuals, a couple then needs to work out their tax bill for a joint declaration and compare the results.  If a joint return produces a lower tax bill, then declare as a couple and forget the individual returns, and vice versa.  

Opting for joint taxation is not binding for successive periods. You obviously can’t change your mind once your tax return(s) has been submitted, but for the following year you can opt for individual returns if that’s better for you.

If it’s possible, you could consider structuring your income to make the most of the choices available to married couples.  For example it may be possible to shift income from one spouse to another to use up more tax allowances, e.g. by arranging for interest or dividends to be divided differently.

Additional allowance just for having earnings related income:

For 2016 returns, there was an additional allowance of €2000. For a joint return, even if each person was entitled to €2000 on individual returns, you were only allowed one €2000 on the joint return.

Earnings-related allowance:

On top of the allowances mentioned above, there is an allowance which is based on your earnings-related income – the lower your income, the higher the allowance.

If earnings related income is less than €11,250, the allowance is €3,700.

If earnings related income is between €11,250 and 14,450, the allowance is:

€3,700 less 1.15625 x (earnings related income - €11,250)

Over €14,450 you don't get anything

This allowance is only available if savings etc income does not exceed €6500.

There is a downside to the way this allowance is calculated. The higher your income, the less your allowance, so the more there is to be taxed on. It's a double whammy which can produce quite unpleasant results.

Comparison:

Taking the basic personal allowance of €5,550, the special €2,000 allowance, and the maximum earnings related allowance of €3,700, this gives you a total of €11,250, against the UK £11,500, indicating you're going to pay more tax here than you would have done in the UK. If you're over 65, then things start looking better, and if you're over 75, then they're better still.

Other allowances:

There are a lot, but I’m not going to detail the other allowances – it would take too long.

Annuities:

These don't get an allowance as such, but are worth mentioning here.

If you receive an annuity bought with your money, rather than your former employer's payments into the fund, then you only include a proportion of the annuity income on your tax return. I'll be giving full details in a later post but, for example, if you were between 60 and 65 when you started to draw the annuity, then you only report 24% of the income.

In addition, this income is taxed at the savings tax rate, which is slightly less than that for earnings-related income.

Dual Taxation Treaty:

This was re-issued in 2013, with the English version having the title CONVENTION BETWEEN THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND THE KINGDOM OF SPAIN FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL - what a mouthful!

If you have paid tax in the UK, on income or capital gains, then you can obtain relief under the double-taxation agreement.

If you would have paid more tax here than in the UK, you can only claim the amount you actually paid in the UK.

And there are some circumstances where you may very well not get relief for the full amount you have paid in the UK.


Fpegman

Sun Jul 16, 2017 10:19am

Posts: 62

Location: La Marina

16 helpful posts

Posted: Sun Jul 16, 2017 10:19am

looks like a copy and paste so can you give a link to where you got this from as it could be copyright 

jimtaylor

jimtaylor

Forum Ambassador for Almoradi

Original Poster

Sun Jul 16, 2017 10:49am

Posts: 705

Location: Almoradí

696 helpful posts

Posted: Sun Jul 16, 2017 10:49am

I hope you're not trying to be insulting.

It's a copy and paste from one of my own created documents.

geoffllo

Sun Jul 16, 2017 11:13am

Posts: 77

Location: La Marina

46 helpful posts

Posted: Sun Jul 16, 2017 11:13am

Keep up the good work Jim, I'm sure I'm not the only one who realised you composed all that yourself!!

As always, thanks for all your efforts.

Geoff.

Fpegman

Sun Jul 16, 2017 12:20pm

Posts: 62

Location: La Marina

16 helpful posts

Posted: Sun Jul 16, 2017 12:20pm

jimtaylor wrote:

I hope you're not trying to be insulting.

It's a copy and paste from one of my own created documents.

Jim I was not trying to be insulting but all that information is posted all over the internet and it is normal to quote the source when posting on a forum like this as the forum owners could be sued for copyright infringement

jimtaylor

jimtaylor

Forum Ambassador for Almoradi

Original Poster

Sun Jul 16, 2017 1:18pm

Posts: 705

Location: Almoradí

696 helpful posts

Posted: Sun Jul 16, 2017 1:18pm

I understand your point of view, but don't agree with you.

I only ever go for official sources, not the likes of lawyer's or financial services websites. 

In the case of this current subject, my sources include the income tax law Ley 35/2006, later laws that modify this, official state bulletins, and information on Agencia Tributaria's website.

When I do quote information verbatim, I state that I am doing so, and usually italicise it to make the quote clear. All other information that I publish in this sort of thread is in my own words.

With reference to copyright, are you saying that since I've published information on this website, then Jan holds the copyright?

And how do you define copyright? Using the words 'income tax' isn't a breach of copyright, nor is it plagiarism. Where do you draw the line?

And would most people prefer to scour the web looking for information, which may or may not be accurate or up to date, and collating information from numerous sources; or would they rather have it all together in one location?

Stevec61

Mon Jul 17, 2017 1:27pm

Posts: 73

Location: Playa Flamenca

28 helpful posts

Posted: Mon Jul 17, 2017 1:27pm

Keep up the incredible great work in this and many other topics that you have a wealth of knowledge about Jim, it is greatly appreciated and ever so informative to many of us. Far better, and more direct than trying to trawl through numerous over laden websites. 

If I ever get to meet you, the beer's will be on me!

Sheila64

Sheila64

Forum Ambassador for Playa Flamenca

Mon Jul 17, 2017 2:40pm

Posts: 101

Location: Playa Flamenca

58 helpful posts

Posted: Mon Jul 17, 2017 2:40pm

Well said, Steve. And so say all of us!

Everything is much appreciated Jim.

Syd

Syd

Sun Aug 20, 2017 10:39am

Posts: 3

Location: La Marina

1 helpful posts

Posted: Sun Aug 20, 2017 10:39am

geoffllo wrote:

Keep up the good work Jim, I'm sure I'm not the only one who realised you composed all that yourself!!

As always, thanks for all your efforts.

Geoff.

I totally agree, Jim has always posted good genuine info. He must spend a lot of his time doing this, he does it FOC.  Well done Jim.

french martini

french martini

Forum Ambassador for La Florida, Los Dolses and Playa Flamenca

Mon Aug 21, 2017 1:08am

Posts: 403

Location: Playa Flamenca

175 helpful posts

Posted: Mon Aug 21, 2017 1:08am

geoffllo wrote:

Keep up the good work Jim, I'm sure I'm not the only one who realised you composed all that yourself!!

As always, thanks for all your efforts.

Geoff.

Fpegman, are you for real? Jim spends his own time to source information as we all try to do to help others, either from personal experiences or by looking things up. How rude! Keep up the great work :-) 

  • Page 1 of 2:
  • 1
  • 2

Sign up for free or login to reply to this topic

Want to reply to this topic? Login or register for free to post your message:

Other recommended topics

Register for free!

Login to your account

Harmony FM
Crystal Cleaners
Advertise your business here

Helpful La Marina info

Helpful La Marina infoOur forum ambassadors for La Marina have written some helpful information for you: