Temporary and lifetime annuities are common financial products in Spain, typically structured through life insurance contracts or capitalisation schemes. The Spanish Tax Office (AEAT) provides a detailed set of rules that determine how much of each payment is taxable and how these annuities must be included in the Personal Income Tax return (IRPF).
What is an annuity for tax purposes
For Spanish tax purposes, an annuity is a financial arrangement in which a person pays a lump sum or a series of premiums in exchange for regular, periodic payments. These payments can be guaranteed for a fixed period (temporary annuity) or for the lifetime of the beneficiary (life annuity). In most cases, annuities are structured through life insurance contracts or capitalisation products, and the taxation rules focus on determining what portion of each payment represents investment return rather than a return of the original capital.
There are two principal types of annuities:
- Temporary annuities, which provide payments for a clearly defined period.
- Lifetime annuities, which provide payments for as long as the beneficiary lives.
Both types can be arranged as immediate annuities, where payments start straight away, or deferred annuities, where payments begin at a future date after a period of accumulation or investment.
How the taxable portion of each annuity payment is calculated
The taxable income arising from an annuity is not the full amount received. The AEAT applies a fixed percentage to each payment, and only that portion is taxed within the savings base of the IRPF. The percentage depends on the type of annuity and, specifically, on either the duration of the payments (temporary annuities) or the age of the taxpayer when the annuity is created (life annuities).
For temporary annuities, the taxable portion of each payment is:
- 12% when the annuity lasts 5 years or less
- 16% when it lasts more than 5 and up to 10 years
- 20% when it lasts more than 10 and up to 15 years
- 25% when it lasts more than 15 years
For lifetime annuities, the taxable portion depends on the taxpayer’s age at the start of the annuity:
- 40% if the annuity begins before age 40
- 35% between 40 and 49
- 28% between 50 and 59
- 24% between 60 and 65
- 20% between 66 and 69
- 8% from age 70 onwards
Effective taxation of annuities
The taxable portion of annuity payments is included in the savings base of the IRPF. For 2025, the applicable savings tax rates are:
- Up to 6.000 €: 19%
- From 6.000 € to 50.000 €: 21%
- From 50.000 € to 200.000 €: 23%
- From 200.000 € to 300.000 €: 27%
- Above 300.000 €: 30%
Because only a fraction of each annuity payment is taxable (such as 24% for a life annuity created at age 62), the effective tax burden on the full payment is much lower than the nominal savings rate. For example, a taxpayer receiving a 10.000 € lifetime annuity that started at the age of 62 would treat 2.400 € only as taxable income. Taxed at 19%, this results in a charge of 456 €, which represents an effective rate of 4,56% over the entire 10.000 € received.
Practical considerations
When dealing with annuities, several practical aspects should be kept in mind. The taxable portion is not recalculated each year; it is a fixed percentage set by the AEAT and it remains constant throughout the duration of the annuity. The remainder of each payment is treated as a return of the initial capital and is therefore not subject to tax. Insurers usually provide an annual certificate showing the payments received and the taxable amount, although the taxpayer must ensure that the correct percentage is applied.
It is also important to be able to demonstrate that the product is genuinely an annuity, particularly when dealing with foreign arrangements. The taxpayer should be able to produce documentation such as the contract, the initial premium or purchase price, the terms governing the payments, and any other evidence that confirms the nature of the product, in case the AEAT requests clarification. Finally, both temporary and life annuities are always included in the savings tax base, never in the general base.
