# Personal allowance



## Avgeek (Jul 30, 2020)

Hello expert expats, just discovered this forum and glad I did. I'm tying myself in knots trying to work out the tax implications of becoming a resident in Spain - I'm sure everyone does at some stage.
First of all I'm going to rent for a year.
Income will be from my UK tax free lump sums from pensions and savings for a start.
I will take out the tax free sums prior to moving because I read they are not tax free in Spain.
I read that they have an individual personal allowance of 5550 Euros per year but it doesn't work the same way as it does in the UK. Can anyone explain this to me? Or is it just the same as the UK where the first 5550 Euros of income doesn't attract tax?
Also, I know that 183 days maximum is allowed before I would need to get residencia.
Do people all stick to this? How do they know if you are there for 183 days or 283 days? Not that I am a law breaker but friends have asked me the question and I don't honestly know.
Appreciate any assistance from you who have been through this pain.


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## Joppa (Sep 7, 2009)

First of all, residency and tax residency are two different things. What is crucial for you is that you get residency sorted (or at least applied for) by 31st December to be covered by the Brexit withdrawal agreement. You can do it as soon as you arrive in Spain with the intention of staying longer than 3 months. 183 days in calendar year triggers tax residency, but it isn't the only one. If your centre of activity is Spain and your family is living in Spain with you, you can be regarded as tax resident regardless of how long you have actually stayed in Spain.
The way tax allowance is applied in Spain is a bit different in Spain, but in the end it works out very similar. Instead of taking away your allowance from gross income before applying tax, they first tax you on all your income and then deduct the tax refund due on your allowances. Apart from personal allowance, most people can deduct further 2,000 euro, and there are allowances for children and dependent adults etc.


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## xabiaxica (Jun 23, 2009)

Avgeek said:


> Hello expert expats, just discovered this forum and glad I did. I'm tying myself in knots trying to work out the tax implications of becoming a resident in Spain - I'm sure everyone does at some stage.
> First of all I'm going to rent for a year.
> Income will be from my UK tax free lump sums from pensions and savings for a start.
> I will take out the tax free sums prior to moving because I read they are not tax free in Spain.
> ...


:welcome:

Are you actually planning to move to Spain, or to pop over now & then for holidays?


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## Lynn R (Feb 21, 2014)

The €2,000 general allowance is only against earned income (which includes pensions), however. If the OP is going to be living off savings including pension lump sums, at least initially, then that would not be applicable

As far as tax allowances are concerned, as well as the €5,550 personal allowance and the €2,000 general allowance, there is also the low income allowance which means that anyone with an income (not from savings) of below €14,450 does not pay any income tax and those whose income is between €14,450 and €17,500 have a low income allowance which tapers off towards the higher end of that bracket.

For the first 8 years I lived in Spain, I did not pay income tax at all as I was living off capital (savings plus proceeds of UK house sale). I did not have to submit any Spanish tax returns (advice given to me in person at my local Hacienda office who told me to come back when I started to receive my pensions!). It can be advantageous to submit zero tax returns, though, if you may have a need to obtain a certificate of fiscal residence in Spain at some time in the future.

The income tax rates for income derived from savings are included in this summary from Blevins Franks, which is quite good. It doesn't mention the low income tax allowance, but then I suppose if people can afford Blevins Franks' fees, it's not going to be relevant to them!

https://www.blevinsfranks.com/news/...re a Spanish,Community where you are resident.


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## Avgeek (Jul 30, 2020)

Thank you all for your advice so far.
Yes, the plan is to move over and use mostly savings, lump sums but also draw small'ish from pension funds after a couple of years. I got a shock when I found out that the tax free lump sums were taxable in Spain and got me investigating more. I have the fear of jumping off a cliff from going from a well paid job to using my savings/pensions I think - as much as the sums do work out fine. I'm looking at needing around £25k to live per year so not huge amounts. Not buying yet because of health issues - I need to test the waters for a year to see if I'm comfortable living there the majority of the time but coming home to see kids/grandkids regularly too - hence the question about how they know the amount of time I will be spending there.


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## ianweld (Aug 1, 2020)

Avgeek said:


> Hello expert expats, just discovered this forum and glad I did. I'm tying myself in knots trying to work out the tax implications of becoming a resident in Spain - I'm sure everyone does at some stage.
> First of all I'm going to rent for a year.
> Income will be from my UK tax free lump sums from pensions and savings for a start.
> I will take out the tax free sums prior to moving because I read they are not tax free in Spain.
> ...


The tax free lump sums were taxable in Spain. Instead of taking away your allowance from gross income before applying tax, they first tax you on all your income and then deduct the tax refund due on your allowances.


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## Roy C (Sep 29, 2012)

Hi,
You say you're not buying yet because of health issues, that could be your biggest hurdle. You will need to get full health cover for the first year with no exclusions ( I believe ) after that you can pay into the state system. There is another thread already going on that topic and somebody has posted a link of an insurance that covers existing conditions, which will be really useful for those that need it.


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## Pesky Wesky (May 10, 2009)

Avgeek said:


> Thank you all for your advice so far.
> Yes, the plan is to move over and use mostly savings, lump sums but also draw small'ish from pension funds after a couple of years. I got a shock when I found out that the tax free lump sums were taxable in Spain and got me investigating more. I have the fear of jumping off a cliff from going from a well paid job to using my savings/pensions I think - as much as the sums do work out fine. I'm looking at needing around £25k to live per year so not huge amounts. Not buying yet because of health issues - I need to test the waters for a year to see if I'm comfortable living there the majority of the time but coming home to see kids/grandkids regularly too - hence the question about how they know the amount of time I will be spending there.


Re the last part of your post, good idea to test the waters before making such a big decision. How do they know the amount of time you will be here..? It's actually up to you to prove or disprove they they say through tickets, bills, accounts etc


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## Megsmum (Sep 9, 2012)

Avgeek said:


> Thank you all for your advice so far.
> Yes, the plan is to move over and use mostly savings, lump sums but also draw small'ish from pension funds after a couple of years. I got a shock when I found out that the tax free lump sums were taxable in Spain and got me investigating more. I have the fear of jumping off a cliff from going from a well paid job to using my savings/pensions I think - as much as the sums do work out fine. I'm looking at needing around £25k to live per year so not huge amounts. Not buying yet because of health issues - I need to test the waters for a year to see if I'm comfortable living there the majority of the time but coming home to see kids/grandkids regularly too - hence the question about how they know the amount of time I will be spending there.


Health issues may well be a stumbling block re gaining residency which you do after three months which is complicated by Brexit which now means you must get residency by the end of this year., which leaves you four months to get here, rent, gain residencia etc etc that timeline looks tight.


If you wait to gain residency after the end of this year you will need approx €32k euros per year and private health insurance with no copayments attached 

One suspects they’ll know because you will be a British passport holder and as such will no longer sail through EU lanes and passports will be stamped. The same way any other country knows when a third country persons enters and exits


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## Catalunya22 (Apr 25, 2020)

Lynn R said:


> The €2,000 general allowance is only against earned income (which includes pensions), however. If the OP is going to be living off savings including pension lump sums, at least initially, then that would not be applicable
> 
> As far as tax allowances are concerned, as well as the €5,550 personal allowance and the €2,000 general allowance, there is also the low income allowance which means that anyone with an income (not from savings) of below €14,450 does not pay any income tax and those whose income is between €14,450 and €17,500 have a low income allowance which tapers off towards the higher end of that bracket.
> 
> ...



Hi Lynn....Can you help.?
You state that anyone who earns less than 14,450 does not pay income tax. Could you explain to me how that works?
For example...my pension is approximately 13200 euros per annum. How do I work out the tax that is due.?
Your help would be much appreciated.


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## Avgeek (Jul 30, 2020)

Megsmum said:


> Health issues may well be a stumbling block re gaining residency which you do after three months which is complicated by Brexit which now means you must get residency by the end of this year., which leaves you four months to get here, rent, gain residencia etc etc that timeline looks tight.
> 
> 
> If you wait to gain residency after the end of this year you will need approx €32k euros per year and private health insurance with no copayments attached
> ...


Yeah, I’ve budgeted for health insurance for year one - I’m used to high travel insurance premiums etc. I really won’t get over by the end of this year due to the virus so I need to suck it up sadly. 
Appreciate all the advice. I’m probably being over cautious with everything but best to have no surprises.


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## Megsmum (Sep 9, 2012)

Avgeek said:


> Yeah, I’ve budgeted for health insurance for year one - I’m used to high travel insurance premiums etc. I really won’t get over by the end of this year due to the virus so I need to suck it up sadly.
> Appreciate all the advice. I’m probably being over cautious with everything but best to have no surprises.


If you cannot get over by the end of this year then you will have to apply under non EU , 3rd country rules, which, as in your first post , £25k will not meet the financial criteria. I’m not sure what the link is someone will know. I’m not trying to be negative BUT most insurance policies will not cover preexisting conditions that will meet residency requirements, travel insurance, AFAIK is not acceptable for residencia. I’m a little confused as to what exactly you want to do. 
Good luck though


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## Megsmum (Sep 9, 2012)

Catalunya22 said:


> Hi Lynn....Can you help.?
> You state that anyone who earns less than 14,450 does not pay income tax. Could you explain to me how that works?
> For example...my pension is approximately 13200 euros per annum. How do I work out the tax that is due.?
> Your help would be much appreciated.


I’m not Lynn. But I too earn under the threshold for tax, my gestor completes my returns based in the information I give him and I pay no tax and on occasions have had a rebate. I do work and have a small NHS pension (despite 30 years)


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## Catalunya22 (Apr 25, 2020)

Megsmum said:


> I’m not Lynn. But I too earn under the threshold for tax, my gestor completes my returns based in the information I give him and I pay no tax and on occasions have had a rebate. I do work and have a small NHS pension (despite 30 years)



Hi Megsmum...

So in my case...pension of 13200 euros per annum , how much tax do you reckon is due...?


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## Lynn R (Feb 21, 2014)

Catalunya22 said:


> Hi Lynn....Can you help.?
> You state that anyone who earns less than 14,450 does not pay income tax. Could you explain to me how that works?
> For example...my pension is approximately 13200 euros per annum. How do I work out the tax that is due.?
> Your help would be much appreciated.


The Agencia Tributaria used to have a very useful tax simulator on their website, I do wish they had not done away with it. My husband's total pensions are very similar to yours, he had his tax return completed at the Hacienda office this year and paid no income tax at all. Mine totalled just over the €14,450 limit this year and I paid €168.

It is because of the low income allowance but the actual way they work it out (it's done automatically when you fill in the tax return online) is beyond me to explain.


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## Catalunya22 (Apr 25, 2020)

Lynn R said:


> The Agencia Tributaria used to have a very useful tax simulator on their website, I do wish they had not done away with it. My husband's total pensions are very similar to yours, he had his tax return completed at the Hacienda office this year and paid no income tax at all. Mine totalled just over the €14,450 limit this year and I paid €168.
> 
> It is because of the low income allowance but the actual way they work it out (it's done automatically when you fill in the tax return online) is beyond me to explain.


Thanks Lynn....But if anyone can explain exactly how it is worked out that would be great.
In the UK my pension falls just below the Personal Allowance of 12500 pounds sterling so I pay no tax on it.
I´m worried that I might have to pay tax on it when I become a Spanish resident....which I have applied for....the TIE


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## Lynn R (Feb 21, 2014)

It's hard to find any information online about this which I could steer you to. But in case it helps, this is information posted from a very knowledgeable person re tax, cannot provide a link to it though as it would contravene forum rules.

"RENTA 2018 UPDATE April 2019

There has been a major increase in allowances for low incomes.

Up until now, there was a special allowance (detailed above) for earned income (including pensions) of €3700 for incomes in the range of €11250 to €14450. Incomes between those two figures were reduced pro rata so that incomes above €14450 got no extra allowance.

For 2018 these figures have been revised upwards. The allowance is now €5565 and the band is increase from €13115 to €16825.

This is a major increase and will affect a lot of residents with the UK state pension with other small private/company pension income."


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## Catalunya22 (Apr 25, 2020)

Lynn R said:


> It's hard to find any information online about this which I could steer you to. But in case it helps, this is information posted from a very knowledgeable person re tax, cannot provide a link to it though as it would contravene forum rules.
> 
> "RENTA 2018 UPDATE April 2019
> 
> ...



Thanks Lynn...But I am still none the wiser.
Are you pretty confident that I won´t have to pay any income tax?
I am aware of the 5550 personal allowance....but I hadn´t heard of the 2000 general allowamce. What is that for? They might as well make the personal allowance 7550 if everyone is entitled to this extra 2000...
I was expecting to have to pay 21% tax on my income above 5550 (in Catalunya).
You have given me some hope...but until I can fathom it all out I´m still a bit worried.
Thanks for your comments so far though....


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## Lynn R (Feb 21, 2014)

Catalunya22 said:


> Thanks Lynn...But I am still none the wiser.
> Are you pretty confident that I won´t have to pay any income tax?
> I am aware of the 5550 personal allowance....but I hadn´t heard of the 2000 general allowamce. What is that for? They might as well make the personal allowance 7550 if everyone is entitled to this extra 2000...
> I was expecting to have to pay 21% tax on my income above 5550 (in Catalunya).
> ...


This is an extract from the Blevins Franks guide to income tax rates and allowances which I posted earlier:-

"Finally, each taxpayer can apply €2,000 per annum as deductible expenses (‘gasts deducible general’) on earned income."

So you would definitely get that to set against your pension income. 

As to why they don't just add it to the basic personal allowance, maybe it's because as I said earlier the €2k is only applicable to earned income, therefore someone who only has investment income wouldn't qualify for it but would be entitled to the basic personal allowance. Or then again maybe it's just to make things more complicated for us!

But the tax system is now quite generous for people with low incomes, I think.


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## Lynn R (Feb 21, 2014)

Confirmation of the reduction in income tax for those on low incomes, from the Spanish press this time, in case you think it's a figment of my imagination:-

https://www.abc.es/economia/abci-si...-bajada-irpf-nomina-201807211125_noticia.html


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## Catalunya22 (Apr 25, 2020)

Lynn R said:


> Confirmation of the reduction in income tax for those on low incomes, from the Spanish press this time, in case you think it's a figment of my imagination:-
> 
> https://www.abc.es/economia/abci-si...-bajada-irpf-nomina-201807211125_noticia.html


Hi Lynn...
Thanks for your help. Much appreciated. I didn´t disbelieve you...It´s just that sometimes you get conflicting information. And so far I have to say that Spanish Officials are not the most helpful of people.


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## Lynn R (Feb 21, 2014)

And from the Agencia Tributaria tax manual itself:-

https://www.agenciatributaria.es/AE...or_obtencion_de_rendimientos_del_trabajo.html

As I said, I do wish they hadn't done away with their online tax simulator. It was very handy for allowing people to work out what their tax liability would be.


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