Once again, taxpayers are approaching the time to file their income and wealth tax returns for the 2021 tax year. This year's tax year includes some new features such as revised tax brackets, taxation of inheritance agreements, limits on reductions in the taxable base for contributions to social security schemes, and new deductions for energy efficiency improvements in homes. The filing period for income and wealth tax returns begins on April 6th and ends on June 30th (with payments due via direct debit until June 27th, 2022).
The income and wealth tax campaign starts on April 6th. While there aren't many new developments, there are some points worth noting, as 2021 income tax returns were generated during the COVID-19 pandemic. This will obviously affect many returns, including those related to furlough schemes (ERTEs), self-employed workers' cessation of activity benefits, business tax modules, rent reductions or moratoria, and financial compensation paid to remote workers (teleworking).
Attention. The campaign for filing Income and Wealth Tax returns for the 2021 tax year begins on April 6 and will run until June 30, 2022, except in the case of direct debit payments, which will run from April 6 to June 27 , 2022, inclusive.
Therefore, taxpayers will be able to access Renta WEBto modify and submit their draft tax return from April 6th using one of the usual identification systems.
Before filing your 2020 Income and Wealth Tax returns, you should gather all the necessary documents, especially the tax information provided by the Spanish Tax Agency (AEAT). Remember that it is very important to carefully review the draft return and, if necessary, modify it before submitting it. Seek advice from an expert professional.
Main changes to Personal Income Tax 2021
Extension of the exclusion limits for the objective estimation method ("modules"): For 2021, the same modules and application instructions as in 2020 remain in effect, as well as the amounts of €250,000 and €125,000 for the total income in the previous year corresponding to all economic activities, except livestock, forestry, and fishing, and for transactions for which invoicing is required, respectively. Likewise, the amount of purchases of goods and services that cannot be exceeded without leaving the system remains at €250,000.
New deadline for resigning or revoking modules for the year 2021: from 24-12-2020 to 31-1-2021. Resigning from modules in 2020 and 2021 is not binding for 3 years.
Deduction of real estate capital for the amount reduced in the rental of premises intended for tourist, hospitality and commercial activities: From 01-01-2021, individuals who rent premises in which certain economic activities linked to the tourism, hospitality and commercial sector are carried out and who voluntarily agree to reductions in the rental income corresponding to the months of January, February and March 2021, may include as a deductible expense for the calculation of the income from real estate capital of the IRPF the amount of the reduction of the rent agreed during such months.
Income from real estate capital. 60% reduction for the rental of real estate intended for housing: Effective July 11, 2021, the expression "income declared by the taxpayer" is clarified, adding that the reduction can only be applied to the positive net income calculated by the taxpayer in their tax return or self-assessment, and cannot be applied to the positive net income determined by the Tax Administration during an audit or inspection procedure (incorporating undeclared income or eliminating non-deductible expenses), even if the taxpayer cooperated by declaring or accepting it during the procedure. This regulation supersedes the jurisprudential criterion recently established by the Supreme Court regarding the previous regulation, which allowed the aforementioned reduction to be applied during an audit or inspection procedure.
Reduction of the period for amounts owed by tenants to be considered as doubtful debt: The period for amounts owed by tenants to be considered as doubtful debt will be 3 months in 2020 and 2021.
Taxation of inheritance agreements: Effective July 11, 2021, it is established that the acquirer under an inheritance agreement must assume the value and acquisition date of the assets of the original owner if they transfer the received assets within five years of the execution of the inheritance agreement or the death of the original owner, whichever is earlier. Thus, the capital gain generated from the initial acquisition of the asset until its transfer by means of an inheritance agreement or contract is subject to taxation. This amendment only applies to transfers of assets made after the entry into force of Law 11/2021, of July 9, on measures for the prevention and combating of tax fraud, i.e., July 11, 2021.
Limits on reduction in the taxable base of contributions to social security systems: With effect from 01-01-2021, different limits in relation to social security systems are modified.
- Private insurance policies that exclusively cover the risk of severe or total dependency: The total reductions applied by all persons who pay premiums in favor of the same taxpayer, including those of the taxpayer himself, may not exceed €2,000 per year (previously the limit was €8,000 per year).
- Contributions to social security schemes in which the taxpayer's spouse participates, is a member, or holds a policy: Taxpayers whose spouse does not receive net income from employment or economic activities, or receives such income in an amount less than €8,000 per year, may reduce their taxable income by the contributions made to social security schemes in which their spouse participates, is a member, or holds a policy. These contributions will have a maximum limit of €1,000 per year (previously the limit was €2,500).
- Maximum joint limit: The maximum combined limit for contributions to social security systems will be the lower of the following amounts:
- 30 percent of the sum of the net income from work and economic activities received individually in the year.
- €2,000 per year (previously the limit was €8,000).
From 2021, this limit will be increased by €8,000, provided that such increase comes from business contributions.
The contributions made by the individual entrepreneur to employment pension plans or social welfare mutuals, of which he is also a promoter and participant or mutual member, as well as those made to company social welfare plans or collective dependency insurance of which he is also the policyholder and insured, will be considered as employer contributions, for the purposes of calculating this limit.
General tax scale, savings tax rates, withholding tax scale and payments on account applicable to recipients of employment income, and scales applicable to workers posted to Spanish territory: Effective from 1 January 2021, a new tax bracket is added to the general tax scale for general taxable income exceeding €300,000, with a tax rate of 24.50%. Accordingly, a new tax bracket is introduced for the withholding tax base for employment income exceeding €300,000, increasing the maximum withholding rate from 45% to 47%. Additionally, a new tax bracket is added to the savings tax scale for taxable income exceeding €200,000, with a tax rate of 26% (national and regional scales combined).
In line with the above, the tax brackets applicable to workers posted to Spanish territory are modified as follows: a) The rate applicable to the portion of the general taxable income exceeding €600,000 is increased from 45% to 47%; b) A new bracket is introduced for the portion of the savings taxable income exceeding €200,000, which increases from 23% to 26%; c) The withholding rate applicable to remuneration paid by a single employer exceeding €600,000 is increased from 45% to 47%.
New deductions for energy efficiency improvement works in homes: With effect from 6 October 2021 (Royal Decree-Law 19/2021, of 5 October), new deductions in the Personal Income Tax (IRPF) of 20%, 40% or 60% are introduced for works in homes and residential buildings that improve energy efficiency and in the exclusion from taxation in said tax of certain subsidies and aid for rehabilitation.
Deduction for investment in primary residence: In the section concerning the transitional arrangements for the deduction for investment in primary residence, the boxes corresponding to the construction of the primary residence have been removed, as the four-year period, extendable for another four years, within which the taxpayer had to complete the construction of their primary residence to be eligible for the transitional arrangements of this deduction has expired. To minimize the possibility of error regarding its application, boxes have been added, in the case of extension or renovation work and adaptation work and installations for the primary residence of persons with disabilities, to indicate the start and end dates of the work. In the case of construction work, the date of the deed of acquisition or new construction of the property will be required.
Main changes to the Wealth Tax 2021
Looking ahead to the 2021 fiscal year, we must keep in mind the following new developments:
Tax scale: The tax rate for the last bracket of the state scale (for assets exceeding €10,695,996.06) is increased by one point, from 2.5% to 3.5%.
Right to the application of the regulations approved by the Autonomous Community for Non-residents: The right to the application of the regulations approved by the Autonomous Community where the greatest value of the assets and rights they hold and for which the tax is required is located, because they are located, can be exercised or must be fulfilled in Spanish territory, is extended to all non-residents, whether they are residents in a Member State of the European Union or the European Economic Area or in a third State.
Reference value of real estate: In line with the changes introduced in other taxes regarding the valuation of real estate, for which the taxable base is established as the reference value provided for in the consolidated text of the Real Estate Cadastre Law, approved by Royal Legislative Decree 1/2004, of March 5, this valuation rule is added to the Wealth Tax for real estate whose value has been determined by the Administration in a procedure. In general, the "value" of assets or rights will be considered their "market value," with the specific provisions set out below. In the case of real estate, its value will be the "reference value" provided for in the Real Estate Cadastre regulations. And, in any case, for the determination of the taxable base, the "value declared" by the interested parties will prevail when it is higher than the market or reference value.
Taxation of life insurance: The Tax Law is amended, effective from July 11, 2021, to stipulate that, in cases where the policyholder does not have the right to exercise the full surrender value on the tax accrual date, the insurance will be valued at the mathematical reserve on that date. However, this rule will not apply to term life insurance contracts that only include benefits in the event of death or disability and other supplementary risk coverage.
Temporary and lifetime annuities: The taxable base for temporary and lifetime annuities is currently calculated based on the present value of the annuities. However, in life insurance contracts where the consideration is received as an annuity, it may happen that this annuity does not fully include the return of the capital contributed, for example, when the insurance provides, in addition to receiving an annuity, an additional benefit in the event of death.
In these circumstances, the application of the rule of article 17.two of the IP Law would determine the inclusion in the taxable base of the tax of a lower value than that which corresponds to the total economic rights derived from the insurance contract.
To resolve this situation, it is now foreseen that, when income, temporary or lifetime, is received from a life insurance policy, it will be calculated at its surrender value on the date the tax accrues and, failing that, at the mathematical provision on the aforementioned date.
Values representing participation in the equity of any type of entity: It is considered necessary to correctly identify the entity issuing said values, therefore the Tax Identification Number must be included.
Cryptocurrencies (virtual currencies): Finally, regarding the new features of the Wealth Tax declaration model, a section is introduced to identify virtual currency balances, which until now had to be included in the generic section of "Other assets and rights of economic content".
What we cannot forget…
Before filing your 2021 tax return, you should gather all the necessary documents, especially the tax information provided by the Spanish Tax Agency (AEAT). Remember that it is very important to carefully review the draft return and, if necessary, modify it before submitting it.
Please note the following alerts and review them:
- Ownership of income: It is common for interest or earnings and their respective withholdings to have a formal ownership (with the financial institution or management company) that does not correspond to the legal and tax ownership. For example, it may be in the name of one spouse but belong to both (the marital property regime), or it may be in the name of one spouse and their child but belong solely to the other spouse.
- Personal and family circumstances: birth of children, marriage, separation, adoption, death of a family member, alimony payments, disability recognized since 2021, etc.
- Form of taxation: we must examine whether joint or individual taxation is more convenient for us.
- Income from work: the draft does not deduct union dues, college fees or legal defense expenses.
- Conferences and courses: it is relatively common for the payer of these payments to classify them as professional activities when they were actually earned as employment income. This error, among other consequences, will prevent us from filing a tax return using the draft form. It is also possible that the opposite will occur: that they are income from professional activities but are classified as employment income.
- Company directors: since the Social Security scheme they fall under is that of self-employed workers, the draft may not consider these Social Security payments as deductible from the employment income obtained from the company.
- Contributions to political parties: there is a right to a deduction and the AEAT (Spanish Tax Agency) does not have this data controlled.
- Imputations of real estate income: it may happen that jointly owned properties are imputed 100% to only one of the co-owners and the actual percentage of ownership of each taxpayer is not recorded.
- Garage spaces or storage rooms: as they have a different cadastral reference, it is possible that, even if we acquired them with the property, we may be charged rent for their use.
- Deduction for home purchase, regarding which the draft will surely not include the following aspects:
- Expenses inherent to the acquisition: notary, registration, commissions, taxes, etc.
- Amounts paid to the developer or builder. Deduction of payments made while the future main residence is under construction.
- Remember that the deduction for home purchase has been eliminated since the 2013 tax year, although a transitional regime is maintained for purchases made before 01-01-2013.
Personal and family circumstances: birth, etc.
Acquisition of textbooks
Environmental investments
Rental by young people
Women or young entrepreneurs
Acquisition of a second home in rural areas (young people)
Not required to file a tax return with a payment due (due to errors in withholdings).
- If we are business owners or professionals, we will have to reconcile the income and expenses of the economic activity with other models presented such as those for VAT, withholdings, declaration of transactions with third parties, etc.
- We need to check if we have carried out any related-party transactions during the fiscal year. This can happen if we are partners or directors of companies, or if we are spouses or relatives of partners or directors. We must take great care to value transactions with related-party companies at market value.
- Check the economic regime of the marriage, the civil status of the declarant, identify the members of the family unit as well as other people who give the right to reductions, deductions or the application of the family minimum.
- Also check the declarations from previous years, or where applicable, the refund request.
- You also need to check whether or not you are required to file an income tax return, and if you are a family unit, you can choose to file an individual or joint return.
- If we were required to declare Wealth Tax, we must anticipate that this declaration can only be submitted online and, in that case, Personal Income Tax can also only be submitted electronically.
In addition, the following documentation should be taken into account :
- Certificates: of work, unemployment, disability, of withholdings issued by tenants of rented premises, income and withholdings from bank accounts, deposits, insurance, dividends or purchases of bonds and promissory notes, of income and withholdings from agricultural and professional activities, of purchase and sale of securities, of prizes, of contributions to pension plans, mutuals or loans.
- Books for recording business and professional activities.
- If they are kept, accounting books.
- If you are a member of a joint ownership community that carries out economic activities or your income exceeds €3,000/year, the notification issued by said community must include information about the income of the entity attributed to you, specifying different types of income, the bases of the deductions that correspond to you and the amount of the attributable withholdings.
- If you carry out an economic activity, it is advisable to have the tax returns for the 2021 financial year in view: VAT, quarterly returns and annual summary; withholdings, quarterly self-assessments and annual summary; form 347, form 720, etc.
- Proof of income and expenses related to the returns on real estate capital.
- Property Tax Receipts: These will provide proof of tax expenses for the rented property, or expenses related to professional activity if the property is used for that purpose, or at least the Cadastral Reference Number that the Administration will require us to provide for the main residence and other properties.
- Supporting documents for the acquisition and disposal of assets that may have resulted in capital gains or losses.
- Declarations from previous years.
Attention. Don't forget this documentation when compiling your paperwork:
- Tax data provided by the AEAT
- Identification data: ID card, tax identification number, family data, etc.
- Certificate of withholdings on wages (work).
- Certificate of benefits and withholdings (pensions and unemployment).
- Certificate of bank accounts (current accounts, savings accounts and time deposits).
- Certificate of income in housing account
- Property Tax Receipt (houses, premises, garages).
- Invoices and receipts for the purchase of a home (main residence).
- Housing loan certificate (main residence or rental).
- Receipts for rent collected and expense invoices (houses, premises, garages).
- Certificate of withholdings on rental of premises (commercial premises given for rent).
- Deed of sale or donation of real estate (sale of houses, premises, garages).
- Certificate of listed securities (shares, public or private debt).
- Certificate of non-listed securities (shares and equity interests).
- Certificate or "statement of position" of investment funds (FIM, FIAMM, SIM, SICAV).
- Certificate of life, retirement and health insurance (including those taken out to obtain a mortgage loan for the purchase of a primary residence).
- Certificates of disability and accreditation of the need for adaptation works in the home of disabled people.
- Pension plan certificate.
- Accounting books (business owners and professionals).
- Printed forms for mandatory tax returns (business owners and professionals).
- Professional retention certificates.
- Receipt of donations to charities.
In order to provide you with better service, please prepare the necessary documentation as soon as possible so that we can analyze it together.
You can contact this professional office for any questions or clarifications you may have.
Warm regards,
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A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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