How Spain taxes a retirement plan

We model these and we know we do not get them exactly right. Where the size could be measured, it is stated.

• Spain charges a yearly tax on what you own, and your region changes it far more than it changes the income tax. Madrid, Andalusia, Cantabria, Extremadura and Murcia have cut it to nothing, Galicia halves it, and others set their own thresholds and rates. We use the national scale, which sits in the middle and is nobody's real answer. On a 1,500,000 portfolio the gap between regions reaches about 5,490 a year.

  Could go either way/up to €5,490 a year/anyone whose portfolio passes the wealth tax threshold, which is 700,000 each

• Half of Spanish income tax is set by your region. We ask which one you live in and charge its own scale. A household that skips the question is charged the scale used for payroll withholding, which is exactly what a resident of Castilla-La Mancha pays and close to what several other regions charge. Top rates run from 45 percent in Madrid to 54 percent in the Valencia region, a gap worth roughly 120 a year at a modest income and 3,130 at a high one. Even with your region named, its own personal allowances and regional deductions are not applied, only its scale. The Basque Country and Navarra run entirely separate tax systems, so none of this applies there.

  Could go either way/up to €3,128 a year/a household in Spain that skips the region question, and every household for the regional allowances and deductions

• Spanish couples are taxed separately by default, each on their own income and their own share of the savings, and that is what we model. A couple where one of you has all or nearly all of the income can instead file one joint return, which takes 3,400 off the income before tax, and would do better that way. For them our figure is too high, by roughly 800 to 1,550 a year.

  Your real tax is lower/up to €1,530 a year/couples where one partner has all or nearly all of the income

• A reduction on pension income vanishes completely once your other income, meaning interest, dividends, realised gains and rent, passes 6,500 in a year. It is a cliff rather than a slope, and we always grant the reduction. Crossing it costs up to about 1,390 a year that we do not show. The reduction only exists below a pension of roughly 21,750, so it takes a small pension and a large withdrawal in the same year to be caught.

  Your real tax is higher/up to €1,387 a year/a retiree on a pension below about 21,750 who realises a large gain in one year

• When you sell part of a holding, Spain assumes the oldest units went first, and those usually carry the largest gain. We average the cost across everything you hold, so in the years you sell we show less gain and less tax than the law. Over a lifetime it does not even out: the tax rate on savings rises with the amount, and gains you never sell before death are not taxed at all.

  Your real tax is higher/up to €420 a year/anyone selling from holdings built up over many years at different prices

• Your tax-free personal allowance is worth a fixed 19 percent of its amount in our model. The law values it at the bottom rate of your own region's scale, which is lower than 19 percent in ten regions, so there we take off up to about 100 a year too much. When the allowance is larger than your other income, what is left over reduces the tax on your savings, as the law says; if that leftover reaches past the first 6,000 of savings income we relieve it at 19 percent instead of 21, so we show up to 14 a year too much.

  Could go either way/up to €100 a year/retirees in the ten regions whose scale starts below 19 percent, and anyone whose allowance is larger than their pension and who sells more than 6,000 of investments in a year

• The reduction on pension income shrinks as income rises, and in Spain only pay and pensions are supposed to shrink it. We let rent shrink it too, so a landlord loses more of the reduction here than in reality and we show too much tax. Money drawn from a Spanish pension plan shrinking it is correct, because that counts as pension income.

  Your real tax is lower/anyone with Spanish rental income and a pension small enough to still qualify for the reduction

• The wealth tax counts everything you own anywhere in the world, and we count only your investment portfolio. Your home sits outside our figure entirely, while the law shelters only its first 300,000, so for a homeowner we understate the charge. Business assets and family company shares are fully exempt, which is why this tax lands hardest on people whose wealth is in investments.

  Your real tax is higher/homeowners, and anyone whose wealth is not all inside the investment portfolio we model

• A Spanish landlord letting a home as somebody's residence has half the net rent taken out of the tax base, and more in some cases: 60 percent on older contracts, up to 90 percent where the rent is capped in a pressured area. Running costs come out as well, including a yearly write-down of the building. We tax rent gross, with none of that, so the tax on your rent here is roughly double what you would pay.

  Your real tax is lower/anyone letting out a Spanish property

• Where a country's tax office publishes its own calculator, we check our figures against it. For Spain that check only partly worked. The allowances came back exactly right, but the income side never submitted, so the tax scales, the pension reduction cut-off and the whole investment income calculation rest on our own arithmetic rather than on an official answer. The rates themselves are the tax office's own published figures.

  Could go either way/anyone relying on these Spanish figures to the euro, especially with large investment income

• Money paid into a pension plan before 2007 can be taken as a lump with 40 percent of it tax free, if you take it in the year you retire or the two years after. When you tell us that share, we take it as a lump in the year you retire, once the plan is open to you, and tax the rest of the plan as you draw it. We do not check whether you retired more than two years before the plan starts, and only your first plan takes the lump.

  Could go either way/someone with pension plan money paid in before 2007 who states that share

These exist in law and we leave them out, usually because applying them would need a question we do not ask.

• Interest on deposits, and dividends from funds or shares that pay them out, are taxed in the year you receive them, at 19 percent and up. We treat the cash part of your investments as a fund that reinvests its income, which is taxed only when you sell, so we charge nothing on that interest while you hold it. If your cash is on deposit we show too little tax, by about a fifth of the interest.

  Your real tax is higher/up to €380 a year/anyone keeping part of their savings on deposit, or holding funds or shares that pay out their income

• There are further uplifts to the tax-free allowance for disability and for dependants. We ask for neither, so for anyone with either we show slightly too much tax. Regions set a version of the allowance of their own as well, but the whole spread there is only around 53 a year, so leaving it out costs almost nothing.

  Your real tax is lower/up to €53 a year/anyone with a disability or a dependant

• Spain has a second wealth tax aimed at large fortunes, and we leave it out. For most people that is exactly right, because what you pay on the first tax is credited against the second and cancels it. It bites in the regions that have cut the first one to zero: there, above roughly 3,700,000 of net wealth, the second is paid in full at 1.7 to 3.5 percent and we show none of it.

  Your real tax is higher/net wealth above roughly 3,700,000, in a region that has cut its own wealth tax to zero

• Spain caps income tax and wealth tax together: the two combined cannot exceed 60 percent of your income, and at least a fifth of the wealth tax always survives the cap. We work the two out separately and never apply the cap, so we can show more tax than you would ever be asked to pay. It binds on exactly the household this tool is built for, a large portfolio drawing a modest income. In our source material a retiree with 5,000,000 drawing 60,000 is capped at 36,000 of tax.

  Your real tax is lower/a large portfolio drawing a modest income from it, which is exactly the household this tool is built for

• Spain taxes you on an assumed income from any second property you own, even an empty one earning nothing. It is 1.1 percent of the official value the tax office puts on the property, rising automatically to 2 percent ten years after that value was last reviewed, and it is added to your pension and taxed at your normal rate. We hold no second property, so it is missing here, and because no money changes hands most owners would never think to mention it.

  Your real tax is higher/anyone who owns a second Spanish property, whether or not it earns anything

• From 65, the gain on selling your main home is completely free of tax, with no cap and nothing you have to reinvest. Separately, a gain on any asset at all escapes tax if the proceeds go into a guaranteed income for life within six months, up to 240,000 over your lifetime. That second one is aimed squarely at someone spending down a portfolio. We offer neither, so we show more tax than you would need to pay.

  Your real tax is lower/anyone 65 or over selling their main home, or willing to turn gains into a guaranteed income for life

• Two kinds of Spanish annuity cannot be chosen yet. A fixed-term income bought with savings is taxed on only 12 to 25 percent of each payment, depending on how many years it runs. An income from an insurance policy that was turned into an annuity later is taxed on the same slice by age plus the growth built up before payments started, spread over the first ten years. If you enter either one as a taxed pension, we tax all of it at the normal rates and show too much tax. Lifelong annuities bought with savings, annuities from a savings plan of the PIAS kind, and the special retirement annuity that is tax free until it has paid back its premiums can be chosen and are taxed correctly.

  Your real tax is lower/anyone with a fixed-term annuity bought with savings, or an annuity from an insurance policy converted after years of growth

• Spain's yearly wealth tax counts the value of an annuity you own, and we leave it out. An annuity paid by an insurer counts at what you could cash it in for, and one bought outside an insurance contract at a capitalised value. Only people already above the 700,000 wealth tax allowance are affected, and for them we show less wealth tax than they would pay.

  Your real tax is higher/anyone with an annuity whose other wealth already exceeds the 700,000 per person wealth tax allowance

• Cashing in a Spanish annuity early is taxed on what you get back plus the payments already received, minus the premiums you paid and the part of those payments already taxed. We cannot model cashing an annuity in, so it shows no tax at all.

  Your real tax is higher/anyone who cashes in an annuity they hold

• Hold a fund based in a country Spain treats as a tax haven and you are taxed every year on an assumed 15 percent return on what you paid for it, whether or not the fund made anything. It is an anti-avoidance rule and we do not model it, on the judgement that nobody planning a retirement this way holds one.

  Your real tax is higher/anyone holding a fund based in a country Spain treats as a tax haven

• A Spanish fund pays 1 percent tax on its own profits before any of it reaches you, and we do not charge it. That rate was not re-checked in our latest pass, so treat it as roughly right rather than settled. Separately, when a fund based abroad has tax withheld on the dividends it receives, you cannot claim that back, and we do not model the cost of it either.

  Your real tax is higher/anyone holding Spanish funds, or funds based abroad that collect foreign dividends

Separate tax systems, or rules that only bite outside a retirement plan.

• Every Spanish property carries a yearly council tax, your main home included, at roughly 0.4 to 1.1 percent of the official value the tax office puts on it. We treat that as a household bill rather than as a tax, so check it is inside the housing costs you entered instead of expecting to find it here.

  Could go either way/anyone who owns Spanish property