Tax Calculation with Allowances
 

Note: this is a long post so I suggest not quoting fully in initial replies to avoid pages of repetitive quoted text.

I’m trying to gain an understanding of an approximate value to allow for 2023 based on Spanish tax laws. This will be my first tax declaration and I’m not suggesting to do this on my own as I will use a gestor. But equally I want to understand that their submission and any tax calculation is correct. I had a good understanding of the UK personal tax system that allowed me to make the best use of salary sacrifice into a private pension to reduce tax liability as a higher rate tax payer. Having read some of the 1400 pages of the Renta 2022 Practical Manual I hope to have a better understanding of the Spanish tax system.

I won’t be liable for wealth tax so treating that as outside the scope of this discussion.

Often there is mention that there is a personal allowance of €5,550 under age 65 which is considerably less than the standard UK tax free allowance.

One interesting item (General reduction for earned income Regulation Article 20 of the Personal Income Tax Act) is that for 2023 taxpayers with net salary incomes below €14,047.50 who have no other income exceeding €6,500 may reduce their net salary income by €6,498 per annum. I understand this is actually a tapered reduction that can be used up to €19,747.50 by applying a reduction factor. Other online sources and posts in this forum suggest pension income can make use of this reduction..

A worked example as a 60 year old living in Andalusia taking a UK private pension using draw down with the equivalent of €12,000, and having savings interest of €4,000.

Note State and Regional tax percentages are the same, but calculations are separate as they normally would be.

Income Tax
Apply reductions for low income and also a general earned income allowance of €2,000 which I assume are applicable.

€12,000 - €6,498 - €2,000 = €3,502Savings Tax*unsure if personal allowance can be applied in the manner

Total Tax Due
€0 + €0 + €185.44 + €185.44 = €370.88



Does anyone have any previous experience that would support and validate the above calculations?
All comments gratefully received.

Thank you for getting this far!

Re: Tax Calculation with Allowances
 

Looks in the ball park but savings interest of €4000?

Re: Tax Calculation with Allowances
 

We are not a financial experts and you should discuss this with a professional advisor like from Gestoría. They will also submit forms. However, you only until 30 June 2023 to submit some of the forms forms on-line.
https://sede.agenciatributaria.gob.e...atrimonio.html
https://sede.agenciatributaria.gob.e...-bancaria.html

Re: Tax Calculation with Allowances
 

Arbitrary values rather than actual used in worked example to get an interesting calculation showing mix of pension income below low income threshold, but with savings income meaning there is tax to pay.

However, €4,000 savings interest isn’t that hard these days with rising interest rates in UK
€80,000 (close to NLV renewal requirements) at 5% Fixed 12 months is €4,000

Re: Tax Calculation with Allowances
 

Agreed as mentioned in my post, but I’m quite hands on and need to understand the calculation to ensure correct reporting.
And it’s for 2023 tax year not 2022 so I have time :)

Re: Tax Calculation with Allowances
 

Nope... not quite right.

The interest on savings is counted within your income as here in Spain thats exactly what it is....
So you have only one allowance.....not two. You cannot apply the allowance against two types of income...and you dont get two lots of €5550 even if you have multiple income streams.

I had an income totalling €17,700 made up of a private pension and premium bond winnings (of €5,000)

My tax was calculated at €2,000 plus but as me n the wife file as a couple its only €1,200 (you benefit from a % of your spouses allowance)

You get the €5,550 as a 'basic' allowance plus the low earnings figure of €2,000
The way it works is that you add all of your income together and then apply the allowances..
Ive not seen anything about an additional €6400 being applied and it certainly hasn't been the last couple of years I have been a Spanish tax payer....

Oh and you will pay 24% of your income if its over €12,450 (thats as the income total before allowances).. Spain is way different to the UK...

Re: Tax Calculation with Allowances
 

The figures you originally posted are hypothetical.:huh: The amount due or allowances could well change before next years submissions. Exchange rate will certainly change.
Calculating your taxes in Spain can be quite complicated so as you said in the first post you should go to a Gestoría that is certainly the best way to solve these issues. It takes away a lot of worry.

Re: Tax Calculation with Allowances
 

The best way to get a reliable calculation of your tax liability (other than going to an asesor fiscal or gestor) would be to use the Renta Open Web simulator on the AEAT website. You don't need to fill in any identifying information.

Agencia Tributaria: Simuladores

However, at the moment it will be using the allowances for the 2022 tax year, I wouldn't think it will be updated with those for 2023 until the New Year.

Barriej, the €6,400 figure for the low income allowance is the amount for the 2023 tax year, it was lower for the 2022 one. And the full amount is only for those whose income was below €13000 approx (can't remember the exact figure), above that it tapers away so on an income of €17k it would have been negligble. Look at box 0023 on your copy of your tax return (reduccón por obtención de rendimientos del trabajo). On my return for the 2021 tax year my tax liability on a taxable income of €12,700 (Civil Service pension declared as renta exenta) my tax liability was €131. On the 2022 return on a taxable income of €18,700 (because of annual pension increase from my occupational scheme of 8.81% in 2022 plus half a year's UK State Pension, the tax liability is €2,331.

I saw reports in the press earlier this week of Feijóo making an election pledge that if elected the PP will reduce taxation for those with incomes below €40k within their first 100 days of taking office (no details given of how much the reductions will be or what form they would take) so the present figures may be subject to change depending on the election result. We might find that that just means an announcement would be made within the first 100 days of changes to be applied for the 2024 tax year which would have no effect for those of us not having retenciones deducted from salary until we submit our tax returns in 2025.

Re: Tax Calculation with Allowances
 

Yes Lynn is right. You could use the PADRE system to try and work out tax - but it will only be for 2022. Also it is true the PP are suggesting tax changes if they are the ruling government and they have said reudctions for 40.000 euros and less- however, I would imagine that the details will be as usual so that the very rich benefit and the lower levels stay the same. The best rule for Spain is that if you have a pension and other small income streams you will pay more than uk in tax. That is what it means to live here . If you find that hard to swallow just remain a non- resident. I hears last week a Norwegian client of my ex has returned to Norway because of spanish tax. In Norway their pensions from state are huge but tax free. When they come to Spain they are technically rich so get taxed- many resent it so much they simply return to Norway!!!

Re: Tax Calculation with Allowances
 

Agreed and I'm paying around twice the tax I would pay in the UK... But that's the price you pay for all the benefits here....
Been watching the news and seeing 40% increases on water bills in the UK, our water costs here are about a third of what we paid in 2020 in the UK before we moved.

Most of the Norwegians I know live here full time but have remained non resident... They reckon they save thousands.
They still have Norwegian Reg cars and think that their freedom of movement trumps spain residency laws...
But before 2016 so did many Brits....

Re: Tax Calculation with Allowances
 

Yes, exactly. We pay less than a third in Council Tax of what we would have been paying on our old house in the UK. Our water bills have never changed in the 17 years we have lived here and are very low. I am reading a lot in the last few days about broadband and mobile phone providers increasing charges by CPI or even RPI plus 3.9% (every year) in the UK, we have been with the same broadband provider here for at least 10 years and in that time the monthly price has only increased once, by €1 per month when they installed FFTP. Our energy bills are low and we only need to pay for heating 5 months of the year at most. I know my tax bill from now on will be at least twice as high as it would be in the UK, but here we have a health service which has served me well and very good infrastructure, at least I can see some benefit from it.

Re: Tax Calculation with Allowances
 

Hmm no box 23 on my form for this year.... jumps from 22 to 25
Interesting....
Maybe as you say my income degraded the extra to zero so its not shown..

Next year will be fun as I have worked and taken my pension and unfortunately won money on the premium bonds this year...

Re: Tax Calculation with Allowances
 

I am sure that must be it as the box 23 did not appear on my 2022 return either, because my income had exceeded the threshold to be eligible for any of the low income allowance. On the 2021 return, the amount of the deduction I received was €5,565. It really does make quite a difference.

I sympathise about next year's return as I will have a full year's state pension to declare not just half, plus this year's pension increases of 10.1% on the state pension and 13.84% on my old employer's pension (when I opened the letter I nearly fell over). Still, as a friend said recently when I was moaning about the tax bill, he wouldn't mind swapping pensions with me if I liked. Congratulations on your premium bonds win - it could be worse, you could have won 1M!

Re: Tax Calculation with Allowances
 

Agreed on single €5,550 personal allowance, but I think the allowance can be used (actually as a tax credit rather than tax allowance in the UK sense) to offset any tax. I’m still looking for official example of this.

I disagree here as there is an example in the Renta 2022 Practical Manual that shows the income taxed at both state and regional scales and rates because they can be different. Also savings tax is calculated separately as there are different scales and rates to income (they don’t differ in the autonomous community)

https://sede.agenciatributaria.gob.e...utonomica.html


Here is the text for the 2022 year
https://sede.agenciatributaria.gob.e...-reducido.html


And here is the link to the 2023 (current) tax year due for submission in 2024
https://sede.agenciatributaria.gob.e...ales-2023.html

Re: Tax Calculation with Allowances
 

Why? Just don't boast about it.............nobody will be any the wiser:wink_smile:

Re: Tax Calculation with Allowances
 

Thanks I will give that a go as applying 2022 rules will give me a ballpark figure.

It seems to want the NIF to proceed beyond the first screen though despite the help stating “but does not require taxpayer identification, does not validate the taxpayer's NIF and does not need to have tax data.”

Re: Tax Calculation with Allowances
 

Regarding several comments above that tax is higher than UK, if you can understand the complicated Spanish tax system and make use of all allowances available by managing your income within those limits (if you can while you can before state pension age) then you can reduce your tax liability.

It is not always possible for everyone but I am not going to lose out without trying.

Re: Tax Calculation with Allowances
 

Tried this against a hypothetical 2022 calculation which validated my approach except I had the regional personal allowance wrong (too low) as I hadn’t realised that some autonomous communities set their own values (documented in the 2022 practical manual) so learnt something else.

Re: Tax Calculation with Allowances
 

The tax declaration is difficult and if you have more than one source of income you should use a gestor. All my Spanish friends do this as it is simply not as user friendly as you think. CAB has a very detailed explanation of how to do it but it makes numerous errors based on misunderstandings of what things are in Spain and comparing / translating to UK system. I saw here that people were saying if you have a UK property rented you just declare net income in spain but this is wrong. All properties irrespective of country must be put on your Spanish Dec along with days rented, castral value, rebuild costs, deductions etc. Empty properties also require all details plus an imputed tax as does your principal property. Numerous deductions are applicable depending on age, income, Children, dependents etc. Then there are the various savings categories that do not equate with uk system. It is not easy and simply using Google translate does not make it understandable. Either pay around 50 euros or go to the tax office to do it is advice. Or else you run the risk of the Carta de Meido!!!

Re: Tax Calculation with Allowances
 

Agreed Ronnyone about the gestor as mentioned in original post I will be despite having by design a simple set of finances. The exercise was to estimate what I need to set aside to pay tax next year and make the best use of available allowances by managing the amount of private pension to draw down. Then in the future when I reach state pension age how to reduce private pension draw down amount to minimise tax where possible.

I will make my own calculations at the end of each year and compare to the official submitted calculation and learn from that.

Re: Tax Calculation with Allowances
 

You cannot estimate the 2023 tax year until they release the new tax rates and allowance later this year. With the election coming up everything could change

As has been suggested, use the 2022 calculator for some indication. Also it will also depend on the exchange rate. Its not worth the hassle of trying to work it out in advance, and the tax you pay will be based on the RENTA program, and if it disagrees with your figure - good luck with arguing the toss with AEAT.

Re: Tax Calculation with Allowances
 

Things will change that is what I wrote ages ago. :D

Re: Tax Calculation with Allowances
 

Have the 2023 rates and allowances not been already been announced in the budget given the many different web sites that already published them? How do employers calculate income tax to be withheld without these rates and allowances?

I appreciate the results of an election could change them, but I would not expect a huge variation. I also understand that exchange rates will fluctuate hence why the figures in my worked example were in Euro not Sterling.

However, I have to respectfully disagree, based on on the rates and allowances information available at this time I can estimate. If they are wrong then my estimate will be inaccurate. If my approach is wrong then my estimate will be inaccurate.

I am sorry but for me it is worth the hassle because it gives me an estimate, an understanding of the tax system and how to make the best use of any allowances. As posted above, I have already used the simulator for 2022 and as my estimate is close to the calculated tax when using the appropriate published 2022 rates and allowances. If my estimate disagrees with RENTA, of course I am not going to be “arguing the toss with AEAT” because clearly I will be wrong and they will be correct.

Maybe this time next year I will come back to this thread and post my findings. Maybe you will be correct, I did not estimate correctly and I can admit that, or on the other hand maybe I did. Either way I have learnt something.

Re: Tax Calculation with Allowances
 

A follow up post to avoid someone applying this process to a private pension as suggested in original post as this is unlikely to be applicable

Further reading of posts on here and elsewhere suggest that private pensions are not taxed as general income but as savings income:

https://britishexpats.com/forum/spai.../#post13099181
https://britishexpats.com/forum/spai...ension-947308/

This means the low income allowance is unlikely to be able to be used. I originally picked up on this in a reply from LynnR who had used it but with occupational pensions which appears to be valid.

When is a pension not a pension in Spain! Back to the drawing board for financial planning.:confused: