Savings managed by insurance in Spain increased by 5.22% in 2023 in the heat of the increase in interest rates, according to data from Unespa, the insurance employer’s association. Unit linked insurance is the one that has grown the most, ahead of PIAS and annuities. With the new year there are those who wonder how savings insurance is taxed and what taxes must be paid on them.
Should savings insurance be included in the income?
Yes, savings insurance is taxed in personal income tax and taxes must be paid on them. The key is knowing when to include them and how.
Generally, insurance performance includes recovering money or receiving payment. To understand it better, if you hire a PIAS you will only pay taxes when you recover the money. “As long as the capital is invested, it is not taxed and, in addition, you can change PIAS as many times as you want without paying taxes,” explains Adrián Viturro, commercial director of Inversimply.
In short, when will you have to include life insurance money in your income? When you rescue him.
How are savings insurance taxed?
“There are different types of savings insurance such as PPAs, unit linked, PIAS or SIALP and they do not work the same nor are they used for the same objective,” discovers Viturro.
There are more conservative ones and also more flexible ones. In addition, they are also taxed slightly differently.
What they all share is the possibility of choosing who will collect the insurance in the event of the death of the insured. That is, “you can choose who inherits the insurance, an advantage when planning the inheritance. Furthermore, since it is not part of the estate, that money can be used to pay the Inheritance Tax, for example,” comments the Inversimply expert.
To talk about their taxation, it is also necessary to know how each one works.
Taxation of PPAs
PPAs are Insured Provident Plans. This is the insurance sector’s version of pension planes and works practically the same, except for some slight differences.
What does not change is its taxation, which is the same as that of a pension plan. This means that the contributions are tax deductible in personal income tax. Specifically, the money you invest will be restored to your tax base. In this way, if you invest 1,500 euros and your salary is 25,000 euros, it will be as if you had only earned 23,500 euros when filing personal income tax.
By redeeming the PPA, that capital will be taxed within the general tax base and will be added to the public pension. In addition, it will be like a second payer in personal income tax.
Like pension planes, PPAs can be recovered in the form of capital (all at once), as an income or in a mixed way. The redemption in the form of capital will allow a 40% reduction on the amounts invested before December 31, 2006.
Taxation of Unit Linked
Unit linked are life-savings insurance policies that invest in baskets of investment funds. This investment can be direct by the user (very unusual) or through a manager. They are a different version of a managed or profiled fund portfolio, only with tax and legal differences.
Unit linked are taxed within savings income as income from movable capital and not as capital gain or loss, like investment income. That is why they cannot be used to compensate for property losses.
The scale at which they are taxed is as follows:
Profits up to 6,000 euros are taxed at 19%. Profits between 6,000 and 50,000 euros are taxed at 21%. Profits between 50,000 and 200,000 euros are taxed at 23%. Profits between 200,000 and 300,000 euros are taxed at 27%. Profits in addition of 300,000 euros are taxed at 28%.
PIAS taxation
PIAS are Individual Systematic Savings Plans. They are savings insurance that can be adapted to different investment profiles, from the most conservative to one who wants to invest 100% in variable income.
Many PIAS actually function as unit linked shells to take advantage of some of the tax and operational advantages. One of them is that they can charge receipts to the savers’ account, so that they save systematically by putting into practice the trick of paying yourself first, one of the 5 keys to retiring young.
The PIAS are also taxed as income from movable capital. However, they have a tax advantage if they are recovered in the form of an annuity. In that case, the income generated will be exempt from reporting and taxes will only be paid on the annuities.
This is something that can be applied to the rest of the capital gains, but up to a maximum of 240,000 euros. With PIAS there is no limit, although the fact that you can invest up to 8,000 euros per year makes it difficult to exceed that figure.
SIALP taxation
Finally, SIALP are Individual Long-Term Savings Insurance that has its counterpart in CIALP, which are known as savings accounts 5. It is a very conservative product that insures up to 95% of the capital and with tax advantages if The money is kept for 5 years.
Specifically, the profit generated will not pay taxes if the investment is maintained for 5 years. This advantage is diluted if we take into account that the interest rates and profitability of the SIALP are very limited (0.1% is what the Santander SIALP Plan offers, for example).
Annuities
Life annuities are the most special life insurance and savings, since their objective is not so much to invest as to offer a periodic income until death.
In a very summary way, life insurance takes initial money and transforms it into an income that is collected month by month. The insurer makes calculations of how much can be received per month based on the age of the insured, the interest it may generate and the initial capital.
These annuities are typically used to supplement the public pension and have significant tax advantages. You will only have to pay taxes on a small percentage of the money collected, a percentage that will be higher the later it is recovered.
