Are the pensions exempt from Personal Income Tax (IRPF)?

We explain who among the retired are exempt from submitting a tax return

Like all citizens who receive an income, pensioners are subject to taxation and must declare their pension on their annual income tax return, if it exceeds the established minimum. Like a normal salary, the state retirement pension is subject to taxation as if it were earned income.

However, there are circumstances in which pensioners are not required to file a personal income tax return or their pension is exempt from taxation. Let's look at those exceptions.

As a general rule, anyone who earns less than 22,000 euros a year is not required to submit an annual tax return.

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This limit goes down to 12,000 euros when there is more than one payer and the amount received from the second payer exceeds 1,500 euros a year For example, a pensioner is considered to have more than one payer if they receive the state pension and income from their pension plan.

It should be noted that foreign pensions should be declared as normal in the majority of cases, as the obligation to pay tax is in the country of residence. To avoid double tax payments, Spain has double taxation agreements with several countries. Moreover, the income derived from these foreign pensions is considered to be from a second payer if the pensioner also receives an income from the Spanish state, in which case the aforementioned limit for two or more payers applies.

Which pensions are exempt from tax?

  • Permanent disability or severe disability pensions, whether they are paid by the Social Security Institute or a private insurance. The limit to the tax exemption for this concept is the maximum benefit recognised by the Social Security Institute; any amount above that must be declared as earned income for taxation in the normal way, .
  • Orphan benefits.
  • Assistance in case of death.
  • Pension in favor of relatives for the absolute disability of the entitled person.
  • Benefits derived from acts of terrorism.
  • Family child benefit.

How is the income from pension plans taxed?

Any amount resulting from redeeming a pension plan is taxed as earned income in the same way as state pensions.

However, pension plans have an important tax advantage when making payments: the amounts paid into your pension plan may be deducted from your personal income tax declaration up to a yearly limit that will be the lower of the following amounts:

  • 8,000 euros.
  • 30% of net income from work and economic activities.
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In addition, any taxpayers, whose spouse can demonstrate a net income from work and/or economic activities of less than 8,000 euros a year, can pay a maximum of 2,500 euros a year into the plan and qualify for additional tax exemption on that amount.

For the purposes of the personal income tax statement, it is important to point out that the rescue of pension plan consolidated rights will be added to the income for wages or payments for work received in that financial year, including the state pension that will be received during the rest of the financial year. In that respect, if you are considering withdrawing large amounts from your pension, it is worth considering the possibility of making the withdrawal order in the following fiscal year, in order to reduce your income tax payment in the current fiscal year.

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