Personal income tax collection on pensions in Spain reached 19,297 million euros in 2024, almost double the 10,816 million that the Treasury received for the same concept in 2018. A growth that occurs while the pensions themselves have risen much less in percentage terms, and that fuels a debate that has been on the table for years without being resolved. Lawyer Miriam Ruiz Acosta, from Compromiso Legal, has explained in a video that, before exposing the two main opposing arguments, she dismantles false news that is circulating strongly among retirees.
The trigger for the video is a viral message that claims that the European Union has ruled that Spanish pensioners should not pay personal income tax. Ruiz Acosta relates that “after investigating I saw that this news was false.” And indeed it is. The European Parliament has confirmed verifiers as damn.es and Newtral.es which has not adopted any resolution in this regard, and the European Commission itself has repeatedly recalled that direct taxation of personal income is the exclusive competence of the member states, not of Brussels.
But the hoax does not arise out of nowhere, since the lawyer understands it and the underlying question does have some meaning. “What happens is that with respect to this I did see that there are two positions,” he explains before detailing them.
Those who defend that retirees should pay
The first position, which Ruiz Acosta presents without taking sides, is based on the fact that pensioners continue to be citizens who use the services financed by the tax. “The personal income tax is intended to create and maintain infrastructure that these pensioners continue to use,” the lawyer details, using roads as an example. From this point of view, retiring does not cancel the tax obligation to contribute to the State in the same way as any other taxpayer.
In fact, according to article 17 of Law 35/2006 on Personal Income Tax or Personal Income Tax (can be consulted in this Official State Gazette) pensions for retirement, permanent disability, widowhood, orphanhood or for family members are full income from work in the eyes of the Tax Agency, so they must be taxed.
In this way, Social Security contributory pensions are taxed as income from work in the general personal income tax base, just like a salary. With the state and regional progressive rate, the marginal rate can reach 47% for the highest incomes. The average retirement pension is around 1,400 euros per month (around 19,600 euros gross per year in 14 payments), an amount that already requires declaration when the pensioner has more than one payer (whose threshold drops to 15,876 euros, compared to 22,000 euros for the single payer).
The double taxation argument
Regarding the second position, Ruiz Acosta explains that “making pensioners pay personal income tax again would be double taxation, since that pension derives precisely from the taxes they have been paying throughout their working life.”
It explains that throughout their active lives, workers and companies contribute to Social Security to generate the right to a future pension. When retirement arrives and that pension begins to be collected, the State taxes the same money again, this time as personal income tax. For those who hold this position, these two tax burdens on the same economic origin have no justification.
And the numbers add arguments to the complaint: personal income tax collection from pensions grew by 97.6% between 2018 and 2024 according to data from the Tax Agencywhile the Union of Treasury Technicians (Gestha) has calculated that for every 100 gross euros of pension increase, the real net that reaches the retiree’s pocket can remain around 50 euros once the withholdings are applied.
Tax as capital and not as labor
Ruiz Acosta also introduces an intermediate alternative, that of those who do not ask for total exemption but for a change in tax category. As he explains, there are people who consider that the pension should be taxed as income from movable capital, which “would have a lower taxation than what it has now when it is considered income from work.”
In practice, this would imply that the pension would be taxed according to the savings scale (between 19% and 30% for 2025, after the reform of Law 7/2024), instead of being integrated into the general rate that reaches up to 47%. The return on movable capital, that is, the income that comes from bank deposits, dividends or bonds, has a more favorable tax treatment because the legislator considers that it has already been taxed once on the capital that generates them. This makes the same reasoning, applied to pensions, exactly what supports the double taxation argument. For a retiree with a pension that is currently taxed at 37% or 45%, the tax savings would be considerable.
The lawyer ends without speaking and asks her followers the question: “Do you consider that pensioners should be exempt from paying personal income tax, that they should pay it the same as other people, or that they should pay it but in a smaller proportion?”