Tips for the end of the year of how to reduce income tax in Spain in 2023
See if you can take any steps before the end of the year to reduce your personal income tax liability in 2023. Here are some ideas for optimising your tax bill before the end of the year. But
Nobody likes paying tax. Why?
- Because we don’t know exactly where our money goes.
- Human beings are selfish by nature.
- Because politicians are all thieves and liars.
- Because we don’t and that’s it.
Maybe these are your reasons to pay less IRPF but here we give you some legal advice that will allow you to reduce your IRPF.
Incentives applicable to reduce the Irpf 2023
Amortise your mortgage
Deduction for housing.
If you bought your home before 2013 and enjoy the deduction for the purchase of your main residence, calculate the amounts you have paid over the year for the loans used for this purchase (capital plus interest). If you do not reach 9,040 euros (the maximum amount for which you are entitled to a tax deduction), make an early repayment before the end of the year until you reach this figure. This will maximise your deduction and you will be able to save 15% of the total amounts paid on your personal income tax [LIRPF, D.T. 18ª.1.a] .
When calculating the amounts eligible for deduction, do not forget to include the annual premiums paid for damage and life insurance that the bank has obliged you to take out in order to grant you the mortgage [DGT V2082-11] , as well as disbursements or payments derived from interest rate hedging [DGT V1915-09] .
Contribution to pension plans
Personal income tax reduction.
On the other hand, remember the possibility of contributing money to your pension plan before the end of the year. In this way you will reduce your personal income tax base by the amounts contributed and obtain savings of up to 47% of these amounts (or even more, depending on the autonomous community in which you live). For these purposes [LIRPF, art. 52] :
In 2023 the maximum contribution to a personal pension plan is 1,500 euros.
In the case of contributions to company plans, this limit is increased by a further 8,500 euros, so that if you do not make contributions to your personal pension plan, the limit for contributions to company plans is up to 10,000 euros.
Plans for the self-employed.
And if you are self-employed, from this year you can make contributions of up to 4,250 euros to the new sectoral pension plans for the self-employed or to the new simplified pension plans promoted by associations or federations of the self-employed, or by trade unions, professional associations or mutual societies in which the participants are exclusively self-employed [LIRPF, art. 52.1.2º].
These contributions, together with those made to personal pension plans and contributions to company pension plans, may not exceed a total of 10,000 euros.
Spouse’s plan.
Also, do not forget that you can contribute up to an additional 1,000 euros to a spouse’s pension plan if your spouse does not earn income from work or economic activities, or if he or she earns less than 8,000 euros [LIRPF, art. 51.7] .
Share Transactions
Sell shares at a loss
Shares at a loss.
If you invest in the stock market and you have shares that are trading below their purchase price, consider selling them before 31 December. This will allow you to count a loss against your personal income tax return. And in some cases, this can lead to savings in personal income tax [LIRPF, art. 49].
Case 1.
It is possible that in this same year you have sold other shares or other assets (for example, a property) that have brought you a profit. In this case, the losses incurred will be offset against this gain, so that you will save between 19 and 28% of the amount that you have been able to offset.
Case 2.
If there is still a negative balance after offsetting (because the losses from the sale of the shares are greater than the gains or because you simply do not have any gains from the sale of other assets), you can still make savings. You can offset this negative balance against certain positive savings income (e.g. interest earned on loans or dividends) up to a limit of 25% of this positive income.
Case 3.
And if after this compensation there is still a negative balance (because you have not obtained interest or dividends, or because after absorbing 25% of these there are still losses pending compensation), you will be able to compensate this negative balance in the following four years, in the same order.
Example.
In 2023 you have made a gain of 60,000 euros on the sale of a property. If before the end of the year you sell shares that cost you 35,000 euros for 20,000 euros, you will have a loss of 15,000 euros that you can offset, saving 3,350 euros in your personal income tax:
| Concept | Not selling shares | Selling shares |
| Capital gain | 60.000 | 60.000 |
| Loss of shares | 0 | -15.000 |
| Taxable income | 60.000 | 45.000 |
| Personal income tax (1) | 12.680 | 9.330 |
19% for the first 6,000 euros of gain, 21% for the next 44,000 euros, and 23% for the next 10,000 euros.
Special rule.
However, for these losses to be compensable under the terms indicated, one requirement must be met: not to buy shares in the same company within two months before or after the transfer [LIRPF, art. 25.2]. The Treasury establishes this precaution so that no artificial sales are made with the sole purpose of compensating for losses.
Without this rule, many taxpayers would sell shares, generate a loss and the next day buy them back, so that their portfolio would remain the same and they would be offsetting a fictitious loss.
Take advantage of losses from previous years
Shares with gains.
If you carry over capital losses from the sale of an asset pending offset from previous years (for example, originating from the sale of a property, shares, etc.), you have four years to offset them, as indicated above [LIRPF, art. 49].
Offset outstanding losses.
Well, if in 2023 this period is going to end and you have shares in the stock exchange with latent profits, sell these shares before 31 December and buy them back afterwards. The sale will generate a gain that you can offset against the capital losses.
The repurchase of the same securities does not affect the computation of the gain. As detailed above, the Personal Income Tax Law prevents the calculation of losses obtained when there is a repurchase in the following two months, but says nothing about gains. Therefore, this operation is totally legal.
Future sale.
You may think that it is not worthwhile to act in this way, since, if you offset the loss, you will pay the same on your income tax return as if you do nothing. However, this operation will save you money in the future: buying the new shares will mean that they will have a higher acquisition value, so that if you decide to sell them later, the gain you will make will be less and the tax you will have to pay will be lower.
Example: You have an outstanding loss carry forward from 2019 of 81,000 euros. On the other hand, you have 5,000 shares in a company that cost you 12 euros each and are now trading at 30 euros, so to offset your 2019 losses, sell 4,500 shares now for 30 euros (giving you the gain of 81,000 euros you need) and buy them back later for the same price. After that, you will have 500 shares purchased for 12 euros and 4,500 purchased for 30 euros.
If in a few years’ time you sell your 5,000 shares for 35 euros, for example, you will save 18,310 euros in your income tax:
| Concept | Without buy-back | With buy-back |
| Acquisition value | 60.000 (5.000 x 12) | 141.000 (1) |
| Transmission value | 175.000 (5.000 x 35) | 175.000 |
| Profit | 115.000 | 34.000 |
| Personal income tax | 25.330 | 7.020 |
(500 x 12) + (4.500 x 30)
