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What tax will expatriates living in Mallorca, Menorca and Ibiza have to pay in 2019? There are no changes to the local Balearics income, wealth and succession tax rates, but the state budget is on hold until after a new Spanish government is formed.

A new year is also the start of a new tax year in Spain, but the political situation here means that we do not yet know what tax rates we will be paying this year. While the local Balearics government has approved its budget for 2019, it will be some months before the national tax rates are confirmed.

Spanish state budget and tax rates

The state budget for 2019 was debated for a couple of months without an agreement being reached. The 2018 budget was therefore automatically extended until the new one is approved, but when it is finally confirmed any new tax rates and rules for Spain are likely to apply retrospectively from 1st January 2019.

On 13th February, the Spanish Congress voted to reject the socialist government’s spending plan for 2019. This defeat led Prime Minister Pedro Sánchez to announce a snap general election for 28th April 2019. This means it will be May at the earliest before a budget can be approved and 2019 tax rates confirmed, but it could take longer, depending on the outcome of the elections – it may take some time for a new government to be formed.

The previous draft budget included two additional tax brackets for income tax (general income):

- From €130,000 to €300,000: +2% (i.e. 39%)
- From €300,000 onwards: +4% (i.e. 49%)

A new 27% tax rate was also proposed for savings income over €140,000.

The current applicable state Spanish wealth tax rate for taxpayers with assets over €10,695,996 would be increased by an extra 1%, resulting in a maximum rate of 3.5%. It was also proposed that wealth tax will apply indefinitely and would no longer need to be extended on a yearly basis.

This situation also affects other draft laws that the socialist government had pending to be approved, like the preliminary bill to introduce measures to prevent and fight against tax fraud in Spain, which was announced in October 2018.

Balearics budget and tax rates

Autonomous regional governments in Spain have the power to amend the regional part of the income and wealth tax rates and reliefs, as well as to adjust the succession and gift tax reliefs and rules. In the Balearics, the 2019 budget has not introduced any relevant new tax rates or rules for this year.

This means that the local Balearics income tax rates for 2019 general income range from 9.5% for income over €10,000 to 22.5% for income over €175,000. Remember the state tax rates need to be added on top – if they remain the same as for tax year 2018, the combined income tax rate rates will rise progressively from 19% to 47.5%.

Likewise, if the state Spanish wealth tax rates remain the same, Balearics residents with worldwide wealth over the allowances will pay tax at between 0.28% and 3.45%. However, as mentioned above, there was a proposal to increase the top wealth tax rate at state level.

There are no changes to the Balearics succession tax regime for 2019, and none were included in the draft state budget either. So the personal reduction for spouses, descendants and ascendants continues to be €25,000 in the Balearics and there is a 100% reduction on the main home, up to a maximum of €180,000 and provided the recipient is a spouse, child or someone over 65 who has lived with you for two years, and keeps it for at least 10 years.

For inheritances received by spouses, descendants and ascendants in the Balearic Islands, the succession tax rate is only 1% for inheritances up to €700,000, after which it rises from 8% to 20%. For other heirs the rates range from 7.65% to 34%. Multipliers depending on the beneficiary’s relationship to you and their net worth that can take it much higher. The rates for lifetime gifts range from 7.65% to 34% for all beneficiaries, again with potential multipliers applicable.

Any questions? Ask our advisers for help

Other Spanish tax news for 2019

The Spanish Tax Office has set up a new department – Unidad de Control de Patrimonios Relevantes – to keep a closer eye on the tax affairs of high net worth individuals. It will take advantage of new technologies and ‘big data’ to analyse and process all the available information from different sources related to wealthy residents, their businesses and family circumstances.

Anyone who has ‘significant assets’ will fall within the scope of this new unit, with special attention paid to taxpayers with assets over €10 million.

We have also been informed by different tax lawyers in Spain that they have seen an increase of inspections on tax residency, particularly for wealthier people. In some cases, the individuals were only spending very few days in Spain, but the Spanish Tax Office is arguing that Spain is their centre of economic interests, which would make them Spanish tax resident.

Blevins Franks specialises in cross-border tax planning and has an in-depth knowledge of the Spanish tax rules and how they interact with the UK ones. Please do not hesitate to contact us if you wish to clarify your tax position in the Balearic Islands, or discuss effective tax planning solutions for both Spain and the UK.

The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.