We know there are people who would love to live in Spain but worry that wealth tax will have too big an impact. However, with specialist advice they may be able to achieve their dream of living here. With careful planning you can often legitimately minimise your wealth tax liability, particularly on your investment capital.

There is a global trend to abolish wealth tax and today only a few OECD countries tax net wealth, compared to half a few decades ago. In Spain, however, it keeps being extended year after year. While most people are exempt – in general, you are only affected if the net value of your worldwide assets is over €1,000,000 – it can have a significant impact on wealthy residents.

Are you liable for Spanish wealth tax?

If you are resident in Spain, wealth tax applies to your worldwide assets, after tax-free allowances (see below). 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.

The tax is payable on the value of most of your capital assets, such as real estate, savings and investments, jewellery, art, antiques, cars, boats etc.
Property is valued at the highest of the following three values: the official ‘valor catastral’; the value recognised by the tax office for other tax purposes; or the price in the purchase agreement. Different valuation rules apply to other assets.

Wealth tax rates and allowances

Each individual, resident or otherwise, has a personal tax-free allowance of €700,000. Spanish residents can get an additional allowance of up to €300,000 against the value of their main home (note that this is not applicable if the property is owned through a corporate structure).

Therefore, a married couple living here and owning a property in joint names could have a total allowance of €2 million. That said, wealth tax is an individual tax in Spain so they have to submit separate tax returns.

The Autonomous Regions can vary the rates and allowances. The allowances above are those applied under the state rules, some regions have different limits.

Madrid provides a 100% allowance, so that its residents do not have to pay any wealth tax, regardless of their net worth. It is the only region to do this though.

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. Since the regional rates vary you need to establish what they are in your area.

Any questions? Ask our advisers for help.

Exclusions and limits to wealth tax

Wealth tax is not payable on general household contents (other than the items listed before, 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 some antiques and works of art, but you need to follow very 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. So, for example, you cannot deduct a mortgage taken out to buy your residence if it is less than the main home exemption.

For residents of Spain, there is a rule which establishes that your cumulative wealth and incomes taxes cannot exceed 60% of your personal income taxable amount (this calculation excludes gains on assets held for more than one year). However, you have to pay a minimum of 20% of the full wealth tax calculation, but this means that, potentially, the total tax payable can be reduced by up to 80%. This depends on how you hold your wealth, and if you can control the amount of income your investments generate. Note that your liability cannot be reduced at all on assets that do not produce any income (i.e. jewellery, cars, etc.).

Planning to minimise Spanish wealth tax - a case study

There may be other steps you can take to reduce wealth tax liability, maybe even significantly, on your investment capital.
Let us look at an example of Mr and Mrs X, who are resident in Andalucía. They jointly own (50% each) a Spanish main home valued at €600,000; €400,000 in bank accounts and an investment portfolio worth €4 million.

Their property is covered by the main home allowance, so no tax is due there. But, even with the €700,000 allowance for their other assets, they each have an estimated annual wealth tax bill of approximately €12,887.

However, after speaking to Blevins Franks and re-structuring their investments, they could substantially reduce their liability to the point where they have almost no wealth tax to pay – so a potential joint tax saving of around €29,000.

If wealth tax, or other Spanish taxes, concern you, Blevins Franks can help. We can review your current tax planning and the way you own assets to see if you can use compliant arrangements to lower your tax liabilities. We have saved our clients a substantial amount of tax over the years. With expert financial advice tailored for your personal circumstances, we can help you make the most of living in Spain.

Contact us now for personalised advice

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.