B Law & Tax
12 June 2023

Tax Advisor: Taxation of Deposits and Savings Accounts

Banks now pay interest on customer savings due to rising interest rates. Deposits and savings accounts generate interest to take advantage of the money saved. Deposits involve leaving money in the bank for a certain period of time in exchange for interest, while savings accounts allow customers to access their money whenever they wish. This difference affects the interest earned and when choosing where to deposit the money, both the profitability and the associated costs, such as taxes, must be considered. In particular, the interest earned is subject to Personal Income Tax (IRPF) and must be declared in the tax return for the year in which it was earned.

According to the Tax Agency, interest generated by accounts and deposits, as well as other financial assets, are considered as income from movable capital. This income is included in the savings taxable base, which is different from the general taxable base in the tax return. The savings tax base includes income from movable capital, as well as capital gains and losses. Depending on the tax base applied, different tax rate brackets are used. For the savings tax base, the tax brackets are as follows:

– For amounts up to 6,000 euros, a tax rate of 19% is applied.

– For amounts between 6,000 and 50,000 euros, a tax rate of 21% is applied.

– For amounts between 50,000 and 200,000 euros, a tax rate of 23% is applied.

– For amounts over 200,000 euros, a tax rate of 26% is applied.

In personal income tax, the savings tax base is divided into state and autonomous community tax brackets. The Autonomous Community bracket is determined by each Autonomous Community, which may give rise to variations in the tax rates applied. However, in the absence of specific regulation, the general rates established by the Personal Income Tax Law are applied. In Navarre, taxation follows a scale with rates between 19% and 28%, while in Vizcaya, Guipúzcoa and Alava, the positive balance of the savings base is subject to a scale of 20% to 25% (the latter rate applicable as from 30,000 euros).

The percentages are applied progressively. For example, if a taxpayer obtains 8,000 euros in interest on a deposit, the first 6,000 euros will be taxed at 19% and the following 2,000 euros at 21%. However, when receiving this interest, a withholding will be applied as an advance payment. It is important to note that the withholding is applied only on the amount obtained, not on the total of the taxpayer’s savings. In general, banks apply a 19% withholding. Then, in the income tax return, the corresponding rates will be adjusted according to the total amount resulting from the savings taxable base.

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