Pension plans
Think about tomorrow, start enjoying today.
Benefits from your contributions
One of the tax advantages of pension plans is the direct reduction you obtain in your tax base for personal income tax each year. The amount of this reduction depends on the amount of the contributions to your plan and the cases we detail below.
In general
The maximum deduction is limited to the lower of the following two amounts:
- 30% of the total net income from employment and economic activities during the financial year.
- €1,500 per year.
Company plans
- Increase of up to €8,500 per year.
Up to €8,500 per year may be added to the general deduction if there are company or employee contributions to the same pension instrument. The deduction will be equal to or less than the amounts resulting from applying the following ratio to the annual company contribution:
1 The multiplier of 1 is applied when the employee's total earned income exceeds €60,000.
Simplified plans for the self-employed
- Increase of up to €4,500 per year.
Exclusively for the self-employed and provided the contributions are made to simplified employment pension plans for the self-employed or to plans for which the worker is the promoter and holder.
Spouse
- Increase of up to €1,000 per year
Contributions to the spouse's pension plan may be deducted from the tax base for personal income tax by up to €1,000 per year, provided the spouse's income from work and economic activities is less than €8,000 per year.
Contributions to plans for people with disabilities
- Increase of up to €24,250 per year.
This reduction is exclusively for people with physical disabilities of 65% or more, mental disabilities of 33% or more, or judicially declared disability irrespective of the degree. This is a joint limit for contributions made to plans, mutual social welfare funds and assured benefits plans. This is the limit for all deductions made by every person who makes contributions to the person with the disability, including the person themselves:
Advantages when changing from one plan to another
Transfers between pension plans are not subject to taxation or tax withholdings. This enables you to move from one type of plan to another to adapt as your retirement approaches.
Benefits when redeeming your pension plan
You have two options when you redeem your pension plan, and these have their own tax implications. These are explained below:
Redemption in the form of a lump sum or capital
When you redeem some (25%, 50%, etc.) or all of your plan as capital, this is taxed by adding the capital redeemed to your earned income in the year. However, there is an exception depending on when the life insurance contributions were made:
Contributions prior to 2007 (40% bonus)
You will be entitled to a 40% bonus on contributions before 31/12/2006 that you redeem in the year you retire or during the following two years.
As regular income
You can decide the frequency of the income: monthly, quarterly, every six months or annual. The income is taxed as you receive it, i.e. little by little. The amount you redeem will be considered earned income and will be included in your tax base for personal income tax.
Tax benefits for your heirs
If the holder dies before redemption, the beneficiaries will be taxed on the assets as earned income.
EPSV
An exclusive product for residents of the Basque Country.
Benefits from your contributions
Contributions to EPSVs allow direct deductions from the base for personal income tax. The amount of this deduction varies depending on the contributions made and the cases we set out. There is a major difference between EPSVs and pension plans: contributions that have not benefited from a tax deduction as they were above the established limits, or due to an insufficient tax base, may be deducted in the following five tax years, provided the holder is not retired.
Personal contributions
- Up to €5,000 per year
Business contributions
- Increase of up to €8,000 per year
Joint contributions (personal plus business)
- Increase of up to €12,000 per year
Simplified plans for the self-employed
- Increase of up to €4,500 per year
Exclusively for the self-employed and provided the contributions are made to simplified employment pension plans for the self-employed or to plans for which the worker is the promoter and holder.
Spouse
- 2.400 €
If the spouse earns less than €8,000 per year from work/economic activities, or has no income, the investor in the EPSV will be entitled to an additional deduction from their personal income tax base for their contributions of €2,400 per year.
Contributions to EPSVs for people with disabilities
- Increase of up to €24,250 per year.
This reduction is exclusively for people with physical disabilities of 65% or more, mental disabilities of 33% or more, or judicially declared disability irrespective of the degree. This is a joint limit for contributions made to plans, mutual social welfare funds and assured benefits plans. This is the limit for all deductions made by every person who makes contributions to the person with the disability, including the person themselves:
Advantages when you change from one EPSV to another
Transfers between EPSVs are not subject to taxation or withholdings.
Advantages when redeeming your EPSV
You have two possibilities when redeeming your investment in your EPSV, which have different tax treatment. These are explained below:
Redemption in the form of a lump sum or capital
If 2 years and one day have passed since the first contribution, an exemption of 40% applies. The remaining 60% is added to your tax base for the first €300,000; the remaining amount is included at 100%
As regular income
The amount you redeem will be considered earned income and will be included in full in your tax base for personal income tax.
Tax benefits for your heirs
If the holder dies before redemption, the beneficiaries will be taxed on the assets as earned income.
Savings insurance/PIAS (individual systematic savings plan)
A special product with very special benefits.
Benefits from your contributions
You do not pay any tax on the returns from your PIAS unless you make redemptions. Throughout this period, you can redistribute your investment into different baskets of funds and types of investment with no tax cost.
Advantages when you receive the benefits as a life annuity
This gives you the best tax advantages from your PIAS, as you are not taxed on the returns during the period when you are making contributions. The life annuity you receive will be taxed as investment income, with a reduction depending on your age when you arranged the life annuity.
Requirements for choosing a life annuity
- At least five years have passed since the first contribution.
- The annual contributions do not exceed €8,000.
- The accumulated capital does not exceed €240,000.
- The beneficiary is the policyholder.
What happens if you decide not to set up a life annuity?
If you choose total or partial redemption of the investment, the income generated is taxed as investment income for personal income tax purposes, with the corresponding withholding on account.
Tax benefits for your heirs
Being life insurance, in the event of the death of the holder, in addition to the general tax benefits for being family members, the beneficiaries can apply an additional government deduction of €9,195.48 each if they are the spouse, ascendant or descendant”
Life annuities
Multiple tax benefits for a single contribution.
Benefits while you receive your life annuity
The income you receive will be considered investment income, reduced in a high percentage depending on your age when you set up the life annuity.
This is how the returns are taxed
The returns are taxed as investment income for personal income tax purposes, with the corresponding withholding on account.
Advantages for life annuities established from sale of assets
Life annuities can be created from the capital from sales of assets such as homes, shares, investment funds, ETFs and valuable objects. This is where we have another significant tax advantage: the possible tax exemption for gains from asset transfers when they are reinvested in life annuities.
General requirements for the capital gains tax exemption for reinvestment:
- The insured must be over 65 years old.
- Reinvest the entire value of the asset transfer up to a maximum of €240,000, i.e. not only the amount of the capital gain. If the entire amount of the asset transfer is not reinvested, the tax-exempt capital gain will be calculated proportionally to the amount invested.
- The life annuity must be set up within six months of the date the asset is transferred.
- Receive the first income within one year of arrangement.
What happens if you redeem your life annuity?
If you redeem your life annuity, you have to return the income that enjoyed tax exemption to the Tax Agency. The positive difference between the sum of the redemption value and the part of the income received and not yet taxed will be considered investment income, with the exception of the one-off premium of the contract. The returns will also be subject to withholdings at the prevailing rate at the time in the region.
Tax benefits for your heirs
Being life insurance, in the event of the death of the holder, in addition to the general tax benefits for being family members, the beneficiaries can apply an additional government deduction of €9,195.48 each if they are the spouse, ascendant or descendant.
Collective investment undertakings
If you don't sell, you don't pay tax.
Tax deferral
One of the major advantages for individuals of investing in a fund is that there is no tax to pay on selling the shares and buying new ones when changes are made to the investment portfolio. This is because investment funds can take advantage of the transfer regime, which means you do not pay tax if the profits are used to buy new units in an investment fund. Capital gains (or losses) are only taxed on redemption. This means the investor can make as many transfers between funds as they want, and this won't have any type of tax impact. This gives greater flexibility compared to other investment vehicles, and is very useful for tailoring the portfolio to new circumstances and considering new strategies.
Deductible expenses
The costs of buying and selling holdings in investment funds - i.e. any subscription and redemption fees paid - are deductible when calculating capital gains.
Inclusion of capital gains as unearned income
Gains from redemption of investment funds constitute capital gains in the savings tax base that can be included and offset with losses from the savings base resulting from the redemption of other CISs, returns from equities or ETFs, and property sale, and with 25% of investment income (collection of dividends, coupons, sale of financial assets, etc.). If the balance is still negative, you have the next four tax years in the order established above).