# Income Tax: Personal and Family Allowances are not Deductable?!



## dancebert (Jun 4, 2015)

As part of deciding if I want to live in Spain, I've been trying to estimate what my 2015 income tax would have been. Some sources listed the amounts for each personal allowance type without explanation. Other sources said were vague or said they're deductions against taxable income. That made sense until I stumbled on a different explanation (all quotes are in italics): _Note that the allowances are not given as a deduction against income (as in the UK), but instead are given as a tax credit against the total tax payable. The amount of credit is calculated by taking the total personal allowance and multiplying this by the scale rates of tax, starting with the lowest rate first. It is then deducted from the taxpayer’s total tax payable for the year._
/SNIP/

The folks at xxxxxxx are not tax professionals, so I verified their explanation with 2 professional services companies with billions in annual revenue for international tax services and compliance with local tax laws from offices in 155+ countries. 

KPMG said (with my notes in braces): _The deductible amount for personal and family minimums is calculated applying the PIT_ [i.e. Personal Income Tax] _progressive scale to the above mentioned amounts_ [e.g. Personal Minimum: EUR5,550]_, in practice, for many occasions, a tax credit of 19 percent as of 2016 of that amount._
KPMG spain-income-tax

PwC has an income tax calculation which includes converting allowances into a credit. At the link find 10,750 in the middle column. Two rows down is 19%, another row down is (2,023) which is both the result of .19 * 10,750 and the amount of tax credit resulting from the 10,750 allowance.
PwC Spain-Individual-Sample-personal-income-tax-calculation

Info from one source may explain why some think allowances are deductions: _Personal and family allowances have been increased and since 2007 are included, as a general rule, in the first income bracket, which is taxed at a zero rate. Until 2007, they were deducted from the tax base, which decreased the progressivity of the tax. _
strongabogados.com

Before I found the PwC and KPMG explanations, I considered installing the PADRE income tax calculator program to deduce from the results how allowances are treated. Although it's downloadable from Agencia Tributaria, the program is only in Spanish.
agenciatributaria.es

Also found some tax professionals who offered _a free calculation of how much you might expect to pay_, but it works only if one has a phone number in Spain.
abacotaxes.com

Anyone care to compare how the personal and family allowances were handled on their tax return to how it was described by PwC and KPMG?


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## Gran Erry-Bredd (Nov 1, 2016)

My brain hurts.


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## dancebert (Jun 4, 2015)

A bare bones simple example using:
- 20,000 taxable income 
- 8,000 of allowances.
with
2016 tax bands and rates
From ----- To --- Rate
00000 - 12450 - 0.19
12450 - 20200 - 0.24

Some think: 20,000 - 8,000 = 12,000 in taxable income. 
Tax is 12,000 x 0.19 = 2,280

Others think 20,000 in taxable income with a credit based on the allowance.
Tax is A + B - C = 2,658 where 
A is 12,450 * 0.19 = 2,366, 
B is 7,550 * 0.24 = 1,812,
C = 8,000 * 0.19 = 1,520


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## Gran Erry-Bredd (Nov 1, 2016)

I'm glad you used a simple example, but my brain still hurts.


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## baldilocks (Mar 7, 2010)

I just leave mine to a gestor and let him get on with it.


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## Megsmum (Sep 9, 2012)

baldilocks said:


> I just leave mine to a gestor and let him get on with it.


Me too.


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## dancebert (Jun 4, 2015)

Megsmum said:


> Me too.


Me three, but 


dancebert said:


> As part of deciding if I want to live in Spain, I've been trying to estimate what my 2015 income tax would have been.


I can't imagine becoming resident in a country without having a good idea of the tax cost. I'd have taxable income from one source and one personal allowance. Treating the allowance incorrectly as a deduction from income would underestimate my taxes by 2035 EUR.


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## snikpoh (Nov 19, 2007)

dancebert said:


> Me three, but
> 
> I can't imagine becoming resident in a country without having a good idea of the tax cost. I'd have taxable income from one source and one personal allowance. Treating the allowance incorrectly as a deduction from income would underestimate my taxes by 2035 EUR.


That's why leaving it to an expert who does this sort of thing every day is the wise move.

Unless, of course, you have little faith in their ability to do it correctly?


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## dancebert (Jun 4, 2015)

snikpoh said:


> Unless, of course, you have little faith in their ability to do it correctly?


Maybe I'm completely misunderstanding that sentence. I said 'Me three', so it's not clear to me what I wrote, if anything, could be interpreted as saying I had little faith in their ability.


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## snikpoh (Nov 19, 2007)

dancebert said:


> Maybe I'm completely misunderstanding that sentence. I said 'Me three', so it's not clear to me what I wrote, if anything, could be interpreted as saying I had little faith in their ability.


You said that you were concerned about under-declaring by some 2k €. so I agreed that it's best to leave it to an expert - unless you don't believe that they'll get it right (in which case that's why you want to know how it's done so that you can do it yourself).

Just interested in why you would want to know, in such great detail, as to how it would be calculated.


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## 95995 (May 16, 2010)

snikpoh said:


> You said that you were concerned about under-declaring by some 2k €. so I agreed that it's best to leave it to an expert - unless you don't believe that they'll get it right (in which case that's why you want to know how it's done so that you can do it yourself).
> 
> Just interested in why you would want to know, in such great detail, as to how it would be calculated.


I think the OP is trying to determine how much money they will have after taxes in order to determine whether that is likely to be sufficient to meet their needs. Whilst you can't forecast currency fluctuations or interests rates (although you can hedge against them), normally you can get a reasonable idea of what your tax bill is likely to be and 2,000 EUR or so could make a big difference to quality of life. Sadly it seems that no one here is able to assist, so perhaps it would be best for the OP to budget for the higher tax bill figure.


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## dancebert (Jun 4, 2015)

snikpoh said:


> You said that you were concerned about under-declaring by some 2k €. so I agreed that it's best to leave it to an expert - unless you don't believe that they'll get it right (in which case that's why you want to know how it's done so that you can do it yourself).
> 
> Just interested in why you would want to know, in such great detail, as to how it would be calculated.


I know now how Spain will tax my Social Security (they won't), tax my withdrawals from Traditional and Roth IRAs (pensions taxed as General income, which the US allows to be re-sourced as a Foreign Tax Credit), if IRAs are considered assets for the Wealth Tax (they're not) and the last piece of the puzzle, how Allowances affect taxes on General income. Spanish income taxes are not a deal breaker, not even close, so I'll continue evaluating it as a place to live.

Using the principles described in paragraphs 1 and 3 of post #1, I built a spreadsheet attempting to reproduce the PwC calculation described in paragraph 4. It worked, so I believe all three sources agree that Allowances are not deductions from income. The only way I would know if it worked is if my results agreed with PwC results down to the Euro. I call that arithmetic, not 'in such great detail', but to each his own.

BTW, in US tax terminology, 'under declaring' wouldn't describe the 2k EUR amount. No idea if it does in English taxes, so I can't comment.


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## baldilocks (Mar 7, 2010)

TBH if you are worried about having to pay too much tax, then you don't have to worry about having enough to live on. I don't pay any tax and have plenty to live on.


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## Bevdeforges (Nov 16, 2007)

Just a comment here - it can be very difficult for Americans to adjust to some foreign tax systems. I don't know anything about the Spanish system, but here in France it's a "declaration" system. That means you report your various items - income, number of dependents, potential entitlements for tax credits or special deductions - and then the tax office does the actual calculation and sends you a bill.

In the US, you actually do your own calculations - for things like personal and family allowances - and when you're first living abroad, it can be kind of maddening to not know exactly what the tax office will do with the information you're providing. 

One thought - are there any tax declaration preparation programs available in Spain? I know using one here in France has helped me see how and where the various bits of information on the tax forms are used in the calculations. (The French forms are a maze of "boxes" - put the number in one box and it is deducted, put the same number in another box that sounds right and it yields a whole different calculation.) The only caveat is that tax preparation software normally only comes in the local language.
Cheers,
Bev


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## Lynn R (Feb 21, 2014)

Bevdeforges said:


> Just a comment here - it can be very difficult for Americans to adjust to some foreign tax systems. I don't know anything about the Spanish system, but here in France it's a "declaration" system. That means you report your various items - income, number of dependents, potential entitlements for tax credits or special deductions - and then the tax office does the actual calculation and sends you a bill.
> 
> In the US, you actually do your own calculations - for things like personal and family allowances - and when you're first living abroad, it can be kind of maddening to not know exactly what the tax office will do with the information you're providing.
> 
> ...


There was, until this year, a very useful simulator on the Spanish Agencia Tributaria website which allowed you to input your details and see how much your tax bill was likely to be. It didn't require you to enter details of any allowances, as the programme automatically worked them out from the information provided. Unfortunately this was scrapped and the only way you can work out your liability now is to download the PADRE programme and complete a return (but not submit it, I suppose). As you say, both the simulator and the actual PADRE programme would be in Spanish only.


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## baldilocks (Mar 7, 2010)

Bevdeforges said:


> Just a comment here - it can be very difficult for Americans to adjust to some foreign tax systems. I don't know anything about the Spanish system, but here in France it's a "declaration" system. That means you report your various items - income, number of dependents, potential entitlements for tax credits or special deductions - and then the tax office does the actual calculation and sends you a bill.
> 
> In the US, you actually do your own calculations - for things like personal and family allowances - and when you're first living abroad, it can be kind of maddening to not know exactly what the tax office will do with the information you're providing.
> 
> ...


From a brief look at the US forms for my in-laws - they have to be the worst ever forms to complete. For the Spanish ones, as most Spanish forms for anything, it much easier to use a "gestor" for which there seems to be no real translation other than "facilitator."


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## kalohi (May 6, 2012)

Bevdeforges said:


> Just a comment here - it can be very difficult for Americans to adjust to some foreign tax systems. I don't know anything about the Spanish system, but here in France it's a "declaration" system. That means you report your various items - income, number of dependents, potential entitlements for tax credits or special deductions - and then the tax office does the actual calculation and sends you a bill.


It's actually even easier than that, at least for me. The tax office, ie Hacienda, already has all my information (Big Brother, anyone?) so I don't have to 'declare' anything. I simply log on to the Hacienda website during tax time, identify myself, and voila, there's my income tax return all completed for the year, waiting for my OK. I have no idea how they come to the figures that they come to. I have to just assume that they know what they're doing. But of course my taxes are beyond simple since I have no dependents, no debts or mortgage, and my one and only source of income is my miserly Spanish salary.


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