Among the different taxes, there are certain incomes which, by their nature or by specific legal provisions, are exempt from Personal Income Tax (IRPF).
This income exempt from personal income tax represents a tax relief for taxpayers and reflects the legislator’s desire to protect certain economic or personal situations.
What is exempt income?
In tax terms, an exempt income is income that, by legal provision, is not subject to income and supplementary tax.
This means that no tax is required to be paid on such income, as it is taxed at a rate of 0%.
Types of income exempt from personal income tax
Maternity and paternity benefits
By virtue of a Supreme Court ruling in 2018, certain benefits received from the Social Security are exempt from income tax (IRPF).
These benefits include childbirth and childcare leave, payments during periods of adoption or foster care, as well as other public benefits related to maternity and paternity.
Compensation for dismissal or termination of employment
Termination payments are subject to a tax exemption up to 180,000 euros. Any amount exceeding this threshold is considered part of employment income and, as such, must be included in the personal income tax return for severance payments.
Lump-sum unemployment benefits
Benefits that comply with the objectives and conditions laid down in Royal Decree 1044/1985 are exempt from personal income tax.
This tax measure seeks to encourage specific activities by alleviating the tax burden on them. It is important that the beneficiaries of unemployment benefits comply with the detailed requirements to benefit from this tax advantage.
Public and non-profit organisation grants
Study grants, research grants and professional development grants are subject to tax exemptions, provided they meet certain established criteria. It should be noted that the amount that can be exempted varies depending on the specific purpose and application of the grant.
Income from work abroad
For professionals working abroad, Spanish law offers an exemption on the taxation of earned income up to a maximum of 60,100 euros per year.
This tax advantage is subject to a number of legal conditions that must be met to the letter in order to apply.
Long-Term Savings Plans
The tax benefits generated by the capital of Long-Term Savings Plans will not be subject to tax if the investor does not withdraw funds from the plan within five years of its inception.
These financial aids encourage long-term investment and the formation of sustainable savings, while offering a tax advantage for taxpayers who adhere to the permanence rules.
Transfer of primary residence by the over-65s
In Spain, people over the age of 65 enjoy an exemption on capital gains generated by the sale of their main residence.
This tax advantage also extends to the transfer of the bare ownership by maintaining the usufruct for life. To qualify for this benefit, the property must have been the seller’s main residence continuously and effectively for at least one year since its purchase or completion of construction.
Donation of a family business
The transfer of family businesses to heirs benefits from an exemption on the increase in value if they adhere to certain conditions.
It is indispensable that the company is active in the market and that a member of the family holds a management position with an appropriate salary. This tax incentive for family donations aims to preserve the continuity and legacy of companies within the family nucleus.
Literary, artistic and lottery awards
Prizes awarded in this category enjoy tax exemption, as they do not fall within the scope of employment income or income from economic activities.
This distinction allows recipients to receive, for example, full lottery prizes without tax deductions, thus reflecting pure recognition of their merit or achievement.
Permanent incapacity benefits
Citizens with an absolute permanent incapacity or severe disability have the benefit of exemption from income tax (IRPF) in respect of social benefits received from the Social Security.
These disability benefits are a recognition of the special needs of this group and seek to alleviate their tax burden.
Compensation for civil liability
Compensation for personal injury or civil liability, when they have legal or judicial sentences, are tax-free in Spain. In other words, it is not necessary to pay tax on these compensations.
Non-taxable remuneration in kind
It should be noted that remuneration in kind that does not have an economic component (such as insurance premiums covering occupational risks) is not taxable.
Procedure for declaring exempt income
In order to declare exempt income IRFP 2024, it is essential to have the appropriate documentation to justify the exemption: it is important to preserve the continuity and legacy of the business within the family nucleus.
- Withholding certificates issued by the payers of the exempt income.
- Proof of exempt income, such as contracts, invoices or similar documents.
- Medical certificates or reports accrediting a situation of disability or illness that grants the exemption.
- Documentation proving the exemption for investments in certain financial products or housing, if applicable.
The process of including exempt income in your personal income tax return involves several key steps:
- Identify exempt income: know which annual exempt income applies to your particular situation. This is the first step, such as payment in kind, pensions and orphans.
- Access the Tax Agency’s platform: use the official website or the help programme for the income tax return to access the section corresponding to exempt income or personal income tax deductions.
- Complete the required information: enter the data requested on the form, such as the type of exempt income and the corresponding amount.
- Attach the necessary documentation: accompany the declaration with the documentation that justifies the exemption of the income.
Exempt IRFP income is a tax benefit that reduces the amount of tax payable. However, it is essential to know the requirements and conditions to be able to apply these tax exemptions.
Tax regulations are subject to change, so it is advisable to consult a tax advisor for personalised advice to ensure that the IRFP exemptions are properly applied to your particular situation.
