income tax online simulator 2015

Information and questions about the Law in Spain and Andalucia.
El Cid
Andalucia Guru
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Joined: Sun Oct 24, 2004 10:42 pm
Location: La Herradura, Costa Tropical, Granada

Re: income tax online simulator 2015

Postby El Cid » Sun Apr 24, 2016 10:51 am

You get the fixed 2000 allowance against earned income which includes pensions, but not personal annuities, which are classed as investment income.

The variable Low Income allowance applies to earned income, but if you have more than 6500 you don't get it.

Sid

Miro
Andalucia Guru
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Joined: Tue Feb 27, 2007 8:20 pm
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Re: income tax online simulator 2015

Postby Miro » Sun Apr 24, 2016 11:12 am

So, a final salary or defined benefits type company pension is classed as "earned" income ( which I interpret generally as income from some form of employment)? An annuity is classed the same as interest or dividends?
I think my acquaintance and many others (perhaps myself included) are unclear on how certain types of income are defined and treated for tax. He doesn't even know if his pension is an annuity or not. And more importantly, I don't think many gestors understand the difference between different types of pensions.
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El Cid
Andalucia Guru
Posts: 15158
Joined: Sun Oct 24, 2004 10:42 pm
Location: La Herradura, Costa Tropical, Granada

Re: income tax online simulator 2015

Postby El Cid » Sun Apr 24, 2016 11:45 am

Pensions are earned income presumably because they relate to employment. Annuities are more complicated. It depends on the exact type of annuity. It needs to be a "money purchase" annuity where you took some money and invested it into an annuity of your choice. This is why it is considered an investment rather than earned income.

In the past, almost all employee pensions were some sort of salary linked scheme, now called "Defined Benefit" schemes. Now that these are generally being replaced with what are called "Defined Contribution" schemes the situation has become more confused as to whether these qualify for the tax advantages, because, like an annuity, a lump sum purchase was involved. In most cases, they do not.

My take on it is that if the pension annuity derived from a company scheme, it does not qualify. If it was money from self employment and in some cases, directors pensions, then it may qualify. The advantage of it being classed as an annuity is a huge tax saving.

Sid


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