Personal Income Tax fundamentals

🔵 Art. 2 Personal Income Tax Law: Income consists of all returns, capital gains and losses, as well as income imputations established by law, regardless of where they were obtained and whatever the residence of the payer.

The components of income that form the taxable event are:

• Earned income
• Capital income
• Income from economic activities
• Capital gains and losses
• Income imputations established by law

For the purposes of calculation, income is classified as general income and savings income.

The personal and family tax-free threshold is the part of the liquidable base intended to cover the basic needs of the taxpayer and the persons who depend on them. That part is not taxed.

Art. 9 Personal Income Tax Law

A person is considered to have habitual residence in Spain when any of the following circumstances applies:

1. Presence for more than 183 days in the calendar year in Spanish territory (sporadic absences are counted, unless tax residence in another country is demonstrated; for tax havens the Administration may require proof of 183 days).
2. Spain is, directly or indirectly, the location of the main nucleus or base of their economic activities or interests.

Unless proven otherwise, it is presumed that the taxpayer resides in Spain when their non-separated spouse and dependent minor children habitually reside in Spain.

The concept of "presence" includes certified presence, presumed days (between two accredited presences) and sporadic absences (according to the TEAC criteria).

To determine in which Autonomous Community the taxpayer resides, the following criteria apply in order:

🟡 Important: Changes of residence whose main purpose is to achieve lower effective taxation have no effect (Art. 72.3 Personal Income Tax Law).

The taxable event consists of the taxpayer obtaining income. Provision of goods, rights or services capable of generating earned income or capital income is presumed to be remunerated, unless proven otherwise.

The following are not subject to Personal Income Tax, among others:

• Amounts received from the disposal of the main home through a reverse mortgage (persons over 65 or in a situation of dependency), provided they comply with applicable financial regulations.
• Income arising in insurance policies that serve as vehicles for pension commitments, where profit sharing is not the result of any right of the policyholder.
• Refunds arising from floor clause arrangements (agreements with financial institutions, court judgments or arbitration awards), together with their indemnity interest. This non-taxable status has had effect since 21 January 2017 and applies to non-time-barred prior years.
• Economic assistance for illness expenses not covered by Social Security, intended for the treatment or restoration of health.

🟡 Floor clauses — treatment of refunded amounts: If those amounts were used for the main home investment deduction, the taxpayer loses entitlement to those deductions and must regularise the net tax liability (non-time-barred years only). If they were used as a deductible expense, they are recognised as income in the year of the refund.

Grants for regulated studies

If the duration is less than the calendar year, the amounts are prorated.

Requirements: public grants or from non-profit entities; awarded on the basis of merit, ability and publicity in an open call.

Research grants

The exemption covers the full economic allocation, including supplementary assistance to attend scientific forums or carry out stays at other research centres.

For the main home reinvestment exemption (Art. 38.1), the property must have been the taxpayer's main home at the time of sale or must have been so on any day during the two preceding years.

• Subsidies from EU agricultural and fisheries policy, including eco-scheme payments (DA 5ª Personal Income Tax Law).
• Public assistance to repair destruction caused by fire, flood, subsidence or other disasters to assets used in economic activities or to main homes (DA 5ª).
• Assistance for the abandonment of road transport (Ministry of Transport).
• Assistance for personal or property damage caused by DANA 2024 (Royal Decree-Law 6/2024). → Full guide: DANA aid and its taxation.

Note (DANA 2024 — economic activities): Direct grants of €5,000 to self-employed persons (individuals) in affected municipalities are exempt as income from economic activities. Requirements: tax domicile or establishment in those municipalities on 28-10-2024, census registration maintained until 30-06-2025 and 2023 tax returns filed showing economic activities.

Basic rules:

• No person may belong to two family units at the same time.
• Composition is determined at 31 December.
• If a child turns 18 during the year, they no longer form part of the family unit in that period.

• It is voluntary and is exercised when submitting the return.
• It must cover all members of the family unit.
• If one member files individually, the others must also file individually.
• The option is not binding for subsequent years.
• Since 2024, to change the option already exercised in a previous self-assessment, box [124] must be checked and the reference number entered in box [104].

Joint filing reduction

• 1st type (marriage): reduction of €3,400 per year in the taxable base.
• 2nd type (single-parent): reduction of €2,150 per year — except where the taxpayer lives with the other parent of the child (in which case it does not apply).