Spanish wealth tax was effectively abolished in 2008 when the government approved a measure to apply a 100% tax credit against an individual’s wealth tax liability. However, it was reinstated in 2011, as part of austerity measures. At the time the intention was to apply it for two years, but it keeps being extended.
In most cases the reduction in tax rates will be welcomed. However, although the tax rates are being reduced, the thresholds are also being changed. It might be that some people find that they are still paying the same or more as they’ve moved into a higher tax category.
On a similar note, although capital gains tax in Spain is being reduced, the inflation factor is being removed, affecting the amount that some people will have to pay. This part of the legislation has been particularly controversial and many people will be disappointed that this coefficient wasn’t allowed to remain.
When Revenue Minister, Cristóbal Montoro announced the 2016 draft budget in August, he described it as “rigorous and consistent”. As part of the proposals, the Government agreed to extend wealth tax to 2016, in order to help sustain the consolidation of public finances.
It was the first time that the Government announced the budget so early, but this is a general election year in Spain (20th December 2015).
The budget has gone through the normal parliamentary procedures. After being approved by the Senate, it was approved by Congress on 20th October, after including some amendments, with the government political party’s votes - and despite the European Commission warning about the deficit target.
Wealth tax rules
Wealth tax is an annual tax, payable on the total value of your taxable assets as at 31st December. If you are resident in Spain you are liable to the tax on your worldwide assets; if non-resident, then only on your Spanish assets.
Each resident individual has a tax free allowance of € 700,000 (€800,000 in Isla Baleares and € 500,000 in Cataluña), plus a € 300,000 allowance on his own home. If a couple owns a property in joint names, each gets the € 300,000 allowance.
Non-residents receive the individual allowance of €700,000, but no allowance against their Spanish property.
The state progressive state tax rates range from 0.2% for assets up to € 167,129, to 2.5% on assets over € 10,695,996. The Autonomous Communities can vary these rates, and the top rate is 3.03% in Andalucía, 3% in Murcia and 2.75% in Cataluña.
The tax is payable on the value of most of your assets, such as real estate, savings and investments, jewelry, art, cars, boats etc.
Some assets are exempt from wealth tax, such as household contents (but excluding jewels, fur coats, vehicles, boats, art and antiques); pension rights (but not purchased annuities); owner managed small businesses and business assets (with conditions). Certain shareholdings are exempt where you carry out managerial duties and derive a salary.
Loans are deductible in calculating your net taxable wealth provided they were not used to buy or invest in assets exempt from Spanish wealth tax.
Limiting wealth tax
Your cumulative wealth and income taxes cannot exceed 60% of the ‘general and savings taxable income bases’ of residents (but excluding from savings income any gains on assets held for more than one year, and the associated tax rates). This is subject to paying a minimum of 20% of the full wealth tax liability.
This liability cannot be reduced at all on assets that do not produce an income, such as your home and other property that is not let out.
There may be other steps you can take to reduce a wealth tax liability, or eliminate it completely, particularly on your investment assets.
If wealth tax, or other Spanish taxes, are a concern for you, consult an experienced tax and wealth management advisory firm like De Micco & Friends o establish if you can lower your wealth tax liability and mitigate higher taxes on your savings and investments.
This information is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.