Wealth tax can be a concern for high net worth residents in Spain, but with careful planning it may be possible to reduce liability.
Spain continues to be a favourite destination for expatriates, including those making the most of their retirement years. There are many benefits to living here, and with the wide variety of property and locations, there is a dream home for everyone.
Taxation can, however, spoil the dream for some, particularly wealthier individuals and families.
Besides the expected income and capital gains taxes, Spain additionally imposes an annual wealth tax. While most people are exempt – in general, if you are resident in Spain, you can only be affected if the net value of your worldwide assets is over €1 million – it can have a significant impact on wealthy individuals. We know there are people who would love to live in Spain but feel that wealth tax will have too big an impact.
However, with specialist advice and careful planning they may be able to achieve their dream of living here – you can often legitimately minimise your overall tax liability in Spain, particularly on your investment capital.
Are you liable for Spanish wealth tax?
If you are resident in Spain, wealth tax applies to your worldwide assets, after the relevant tax-free allowances.
For non-residents it affects Spanish assets only. It is payable on the total net value of your taxable assets at the end of each year (i.e. 31st December).
The tax is payable on the net value of most of your capital assets, such as real estate, savings and investments, shareholdings, jewellery, art, antiques, cars, boats etc.
Wealth tax rates and allowances in Spain
State rates and allowances
Each individual, resident or otherwise, has a personal tax-free allowance of €700,000 (although this figure can vary in certain Spanish Autonomous Regions – see below).
Spanish residents can get an additional allowance of up to €300,000 against the value of their main home (excluding properties owned through corporate structures).
Therefore, a married couple resident in Spain and owning property in joint names could potentially have a total tax-free allowance of €2 million for wealth tax purposes. That said, wealth tax is an individual tax in Spain so they have to submit separate wealth tax returns.
The state progressive wealth tax rates start at 0.2% on assets up to €167,129 and rise up to 2.5% on assets over €10,695,996. The Autonomous Regions can adjust these rates, so you need to establish what the rates are in your area, for example:
Andalucía
The state allowances apply but progressive rates start at 0.24% on assets up to €167,129 and rise up to 3.03% on assets over €10,695,996.
Balearics
The state allowances apply but progressive rates start at 0.28% on assets up to €170,472 and rise up to 3.45% on assets over €10,909,915. This is slightly higher than the most other Spanish regions.
Canary Isles
The state allowances and rates currently apply.
Cataluña
The individual allowance is reduced from €700,000 to €500,000. Progressive rates start at 0.21% on assets up to €167,129 and rise up to 2.75% on assets over €10,695,996.
Comunidad Valenciana
The individual allowance is reduced from €700,000 to €600,000. Progressive rates start at 0.25% on assets up to €167,129 and rise up to 3.12% on assets over €10,695,996.
Madrid
As Madrid currently provides a 100% tax-free relief, its residents do not have to pay any wealth tax, regardless of their total net worth, although they may need to submit a wealth tax return only for information purposes. It is the only region to do this.
Murcia
The state allowances apply but the progressive rates are slightly higher, ranging from 0.24% to 3%.
Exclusions and limits to Spanish wealth tax
Wealth tax is not payable on:
- General household contents (other than items like art and vehicles)
- Pension rights (other than purchased annuities)
- Certain shareholdings in family companies and business assets (subject to conditions)
There can be some exemptions for antiques and works of art, but you need to follow specific rules.
When calculating net taxable wealth, loans are deductible provided they were not used to buy or invest in assets exempt from wealth tax, but in some cases certain conditions must be met.
The 60% limitation rule
For Spanish residents only, there is a rule which establishes that your cumulative wealth and income tax liabilities cannot exceed 60% of your personal income taxable amount (but excluding gains on assets held for more than one year). However, you do have to pay a minimum of 20% of the full wealth tax calculation originally calculated. This depends on how you hold your wealth, and if you can control the amount of your taxable income your investments generate on annual basis – there are some tax-efficient investments that will allow you to reduce both your income and wealth tax liabilities in Spain.
Note that your wealth tax liability cannot be reduced at all on assets that do not produce any income (i.e. jewellery, cars, etc.).
Tax planning for Spain
If wealth tax or other Spanish taxes concern you, ask a specialist tax and wealth management adviser to review your current tax planning and the way you own assets to see if you can use Spanish tax compliant arrangements to lower your tax liabilities. With careful planning, you could structure your investments to provide a number of advantages.
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