After the previous post providing an overview and some explanations around the income side of the equation, we will dig into the first type of tax credits: reductions.
Remember that the Spanish system first calculates your income base, then reduces certain tax credits (reductions or “reducciones”) from it, obtains a “cuota integra” (overall quote) by applying a progressive tax rate (see table on the post mentioned at the beginning), and later on lowers it through other type tax credits (deductions or “deducciones”) to get to the final figure: net quote (“cuota líquida”).
Depending on your age, there is a certain amount that will be taken from your income base, which is called “Minimo Personal y Familiar” (Family and Personal Minimum), on the understanding that it is the minimum amount of money you need to live and therefore is not subject to taxation. As an example, an individual of less than 65 years will automatically get an annual tax allowance of €5550.
You might also have further tax allowances of this nature if you have relatives living with you, primarily children of less than 25 years or parents or grandparents, providing that they are not receiving income above 8000€. Further tax allowances will apply if these family members are disabled.
If you receive rents from real estate investments, certain concepts are categorised as reductions (with certain limits depending on their type):
- Interests and financing-related expenses (if there is loan on them).
- Repairing and maintenance services
- Related-taxes to your property (such as the IBI (“Impuesto sobre Bienes e Inmuebles (Property/Real Estate Tax))
- Any losses you foresee in rental income
- Insurance premiums
If you are renting a real estate property for housing purposes, its taxable income base will be up to 60%, again with certain limits.
From the profits that come from financial investments, insurance payments, or retirement income, only certain administration-related costs can be taken as tax credits.
If you are an employee and are fired for causes not related to your job performance (“despido improcedente”), the redundancy payment will not be taxed if it is below €180000 and does not include any additional revenue other than that established by law – in some cases, additional compensation is agreed between the employer and the employee and this might be taxable.
After taking all the reductions, you are entitled to from the income base, an overall quota is obtained. In the next post we will approach the other type of tax credits, deductions in the quote, that will determine the final tax amount you pay: the net quote.
What do you think of this type of tax credits? Anyone that you were not aware of or had not imagined? Are you benefiting from them?
Please be aware that I am not an expert in taxes and therefore you should always seek professional advice. Please also bear in mind that, as with any tax code, there are many rules and variations from one individual to another.
Links of Interest:
Agencia Tributaria, Personal Income Tax
Agencia Tributaria, Manual Práctico Renta 2017
Cinco Días, ‘Otras’ rentas del trabajo: (‘Other’ working income)
Computing, “La Agencia Tributaria se rige por la gobernanza del dato” (The Spanish Tax Agency operates according to the Data governance)
El Confidencial, Renta 2017 y Vivienda (2017 Income Statement and Homes/Residencies)
Gestoría Orejana, Régimen Especial de Trabajadores Desplazados (“Ley Beckham”)
Rankia, ¿Cuáles son los tramos del IRPF 2017? Campaña 2018 (Income tax rates)
Super Contable, Tratamiento fiscal de los gastos de viaje y dietas (Taxation on travel expenses and daily allowances)
Photos: descending road in la Rioja region. White houses in an Andalusian village.