How dividends, interest and life insurance are taxed

The income your invested money generates — dividends, interest, insurance — is generally taxed in the savings base, which has lower rates than the general scale.

Who does this affect?

• If you own shares and receive dividends → taxed in the savings base at 19–30%.
• If you have deposits or bonds with interest → also go into the savings base; custody costs are deductible.
• If you received a lump-sum benefit from a life insurance policy → the income is the difference between what you received and the premiums paid.
• If you receive a life annuity → only a percentage of each annuity is taxable, depending on your age when it was created.
• If you assign patents, trade marks or your image rights → goes into the general base, not the savings base.

According to your situation

🟡 Loans to related entities (shareholding ≥ 25%): The portion not exceeding 3 times the entity's own funds (in proportion to your shareholding) goes into the savings base. The excess goes into the general base.

Key figures

Percentage of immediate life annuity that is taxable (by age when created):

Percentage of immediate temporary annuity that is taxable (by duration):

What you need to know

• Savings base vs general base: Most investment income goes into the savings base (19–30%); only a few special cases go into the general base.
• Very limited deductible expenses: For interest and bonds, you can only deduct administration and custody costs for negotiable securities. Portfolio management fees are not deductible.
• Life insurance: The income is the difference between what you receive and the premiums you paid. If received as an annuity, only a percentage of each annuity is taxable.
• PIAS: If a life annuity is actually created meeting the legal requirements, the return accumulated up to that point is exempt.
• Unit-linked: If the policyholder can freely modify the underlying assets (not just choose from insurer-set baskets), the return is attributed annually even if not received.

🔴 Estimated income on loans without agreed remuneration: If you lend money without agreeing interest, the tax authorities presume income exists and value it at the legal interest rate (3.25% in 2025). This applies unless you can prove otherwise.

🟡 Share premium distribution and capital reduction: The tax treatment depends on whether the securities are traded on EU regulated markets, and may be taxed as investment income when it exceeds undistributed profits.

🔵 Bonded debentures: The effective withholding is 1.2%, but the taxpayer may also deduct the theoretical withholding not applied (up to 19% in total).

Official text

📄 Official source — AEAT · Practical Income Tax Manual 2025 (verbatim reproduction, for information only).

What is investment income?

Investment income comprises all gains or consideration — in money or in kind — deriving from movable (non-real estate) assets or rights of which you are the owner, provided they are not used in an economic activity.

🔵 Important: Shares and loans to third parties are never considered as assets used in an economic activity, even if you carry on business activities.

What is not investment income:

• Bonus shares issued by the company (different tax treatment)
• Dividends for periods when the entity was taxed as a patrimonial company
• Consideration for the deferral or instalment payment of prices in the ordinary course of an economic activity
• Income obtained by gratuitous transfer on the death of the taxpayer

Classification: which taxable base does each income go into?

Income going into the savings taxable base:

Income going into the general taxable base:

Income from participation in entities' own funds

(Art. 25.1 Personal Income Tax Law)

• Dividends, attendance fees at general meetings and profit-sharing from any type of entity
• Income from assets entitling participation in profits, sales or revenue of the entity
• Income from the creation or assignment of rights of use over shares and interests
• Any gain deriving from the status of partner, shareholder or participant

Income from lending own capital to third parties

(Art. 25.2 Personal Income Tax Law)

• Interest on current accounts and fixed-term deposits
• Interest and other returns on bonds, debentures and fixed-income securities
• Interest on loans granted
• Implicit returns on financial assets: Treasury Bills, Government Bonds, preference shares, subordinated debt
• Temporary transfers of financial assets and assignments of credit

Deductible expenses in this category:

Only administration and custody costs for negotiable securities are deductible. Discretionary portfolio management fees are not deductible.

(+) Gross income (interest, implicit returns...)
(-) Administration and custody costs for negotiable securities
─────────────────────────────────────────────────────────────
(=) Net investment income

For financial assets with implicit returns:

Income = Transfer or reimbursement value - Acquisition or subscription value

Estimated income (no agreed remuneration):

If you lend money or assign assets without agreeing any remuneration, income is presumed to exist. Unless proven otherwise, it is valued at the legal interest rate on money: 3.25% for the 2025 tax year.

Special case: loans to related entities:

• The part not exceeding 3 times the entity's own funds (in proportion to your shareholding): savings base
• The excess: general base

Income from life and invalidity insurance and capitalisation transactions

(Art. 25.3 Personal Income Tax Law)

For income to be taxed as investment income it is necessary that the policyholder and the beneficiary are the same person (except in invalidity insurance where the beneficiary is the mortgage creditor).

1. Deferred capital (benefit paid as a lump sum):

Income = Capital received - Sum of premiums paid for survival

2. Immediate life annuities:

3. Immediate temporary annuities:

4. Deferred annuities (life or temporary):

Same percentages as for immediate annuities, plus the return accumulated during the deferral period:

(Current actuarial financial value of the annuity - Premiums paid) ÷ Number of years of receipt (max. 10)

5. Surrender:

Income = Surrender value + Annuities already received - Premiums paid - Amounts already taxed as investment income

Individual Systematic Savings Plans (PIAS):

If the legal requirements are met (the policyholder, insured and beneficiary are the same person and a life annuity is actually created), the return generated up to the creation of the annuity is exempt.

Transitional regime: insurance prior to 31 December 1994:

The reduction percentage is 14.28% for each year elapsed between payment of the premium and 31 December 1994 (up to a maximum of 100% if more than six years). The combined limit of deferred capital entitled to reduction is €400,000.

Other investment income (general base)

• Intellectual property: only when received by someone other than the original author
• Industrial property: assignment of patents, trade marks and similar
• Technical assistance: assignment of knowledge or technical procedures
• Rental of movable assets, businesses or mines: hire of going concerns goes here
• Sub-letting: what the sub-lessor (the tenant who sub-lets) receives
• Image exploitation: when the right is assigned to third parties for commercial exploitation

Reduction for irregular income (30%)

A 30% reduction applies when the income has a generation period of more than two years and is attributed in a single year, or when it is obtained in a notably irregular manner.

🟡 Limit: The base to which the 30% applies may not exceed €300,000 per year.

Unit Linked: insurance with investment risk assumed by the policyholder

Insurance contracts in which the policyholder chooses the underlying investments are known as "unit linked". Their tax treatment depends on whether they meet certain legal conditions throughout the contract's lifetime:

• If they meet the conditions (the policyholder cannot freely modify the assets — only choose between funds or baskets predetermined by the insurer): they are taxed as ordinary life insurance.
• If they do not meet the conditions: the yield is attributed to the taxpayer annually, without waiting for actual receipt (Art. 14.2.h LIRPF).

Withholding tax

Investment income is subject to withholding tax at a rate of 19% as a general rule.

For bonded debentures (such as those of toll motorways), the effective withholding is 1.2%, but the taxpayer may also deduct the theoretical withholding that was not made (up to 19% in total).

Frequently asked questions

Is interest on my bank deposit automatically withheld?

Yes. The bank applies a 19% withholding directly. That withholding is deducted from the amount owed in your tax return, so you may be entitled to a refund if your effective rate is lower.

What expenses can I deduct from my dividends or interest?

For interest and bonds, only the administration and custody costs charged by the bank for holding your securities. You cannot deduct portfolio management fees. For dividends, there are no deductible expenses.

How does the PIAS exemption work?

If you actually convert your PIAS into a life annuity and the policyholder, insured and beneficiary are the same person, the accumulated return up to that point is exempt. If you surrender it before converting it into a life annuity, it is taxed as ordinary investment income.

If I purchase an immediate life annuity, how much of each payment is taxed?

Only part of each annuity is taxed as investment income (savings tax base). The percentage is fixed at the moment the annuity is created, based on your age at that time, and remains constant for the lifetime of the contract:

Age when the annuity is created	% that is taxed
Under 40	40%
40-49	35%
50-59	28%
60-65	24%
66-69	20%
70 or over	8%

• Under 40

  % that is taxed 40%

• 40-49

  % that is taxed 35%

• 50-59

  % that is taxed 28%

• 60-65

  % that is taxed 24%

• 66-69

  % that is taxed 20%

• 70 or over

  % that is taxed 8%

For example, if you purchase the annuity at age 70, only 8% of each payment is taxed for the rest of your life. The withholding rate applicable to the taxable portion is 19%.

Legislation

• Art. 25 Personal Income Tax Law — Investment income
• Art. 25.1 Personal Income Tax Law — Income from participation in entities' own funds
• Art. 25.2 Personal Income Tax Law — Income from lending own capital to third parties
• Art. 25.3 Personal Income Tax Law — Income from life and invalidity insurance