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Wealth tax is an annual tax charged on your annual worldwide assets. It can have a significant impact on wealthier people, although there are always ways to legitimately reduce your wealth tax bill.

Despite rumours that 2016 would see the end of wealth tax in Spain, the government has confirmed it is here to stay for another year. It is not difficult to see why – in 2014, the tax office collected around €937 million in wealth tax, with Andalucía, Comunidad Valenciana and Cataluña being the most lucrative regions.

Who has to pay wealth tax?

Generally, you will be in the firing line for wealth tax if your combined worldwide assets are worth over €1 million as at 31 December. However, this threshold will depend on the Spanish region where you are resident and also on the value of your main home. Residents in Spain are liable for tax on worldwide assets, while non-residents are liable on assets located in Spain only.

Relevant assets include real estate, savings and investments, jewellery, art, antiques, cars and boats. Other household contents and pension rights (other than purchased annuities) are not included in wealth tax calculations, nor are certain shareholdings and business assets if certain requirements are met. Loans are deductible in calculating your net taxable wealth, so long as they were not used to buy or invest in assets exempt from wealth tax.

With some generous allowances in place, many people find they are exempt from paying wealth tax. For wealthier individuals and families, however, it can have a significant impact, although there are always ways to legitimately reduce your wealth tax bill.

How much will you pay?

The state wealth tax rates range from 0.2% for assets valued up to €167,129 to 2.5% for assets over €10,695,996. The autonomous communities can amend these rates, so you need to check the ones for the region you live in.

However, there is a general €700,000 tax-free allowance per person, with an extra main home relief of up to €300,000 available to Spanish residents against the value of their main home. For a married couple resident in Spain and owning a property jointly, this could mean a total allowance of €2 million.

If your total wealth is above the allowances, take specialist advice on exactly how it will affect you and to explore your options to reduce its impact.

Limiting wealth tax

There is some relief available if you are a Spanish resident, as your total wealth and income tax bill is capped so it cannot exceed 60% of your personal income taxable amount. However, you still have to pay a minimum of 20% of your full wealth tax calculation. Also, your liability cannot be reduced on assets that do not produce taxable income, like your main home, interest-free loans, jewellery, antiques and vehicles.

There may be steps you can take to legitimately reduce wealth tax liability, or eliminate it completely, particularly on your investment assets. Make sure you structure your finances in the most effective way to legitimately shelter yourself from wealth tax, as well as other taxes in Spain, by taking specialist, personalised advice.

Any questions? Ask our financial advisers for help.

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.