This is the first Spanish state budget to be approved since 2018! Get to know the latest income, wealth and inheritance tax rules for Spain.
Spain’s state budget has finally been approved. How will this affect your tax bill if you’re living in Spain? Get to know the latest rates and rules for Spanish income taxes, wealth tax and inheritance tax in 2021.
Taxpayers in Spain are affected by two annual government budgets: the state budget and the regional one. The ‘autonomous communities’ in Spain can adjust the local half of the income tax rates and adapt rates and allowances for wealth tax and succession tax, usually to make them more beneficial.
The Spanish General Budget Law for 2021 was published in the official gazette on 31 December 2020 and applies from 1 January 2021. This was the first state budget to be approved since 2018.
It is forecast to raise an additional €5.5 billion in tax revenue for the state, which will be welcome after its collection shrank by 7.6% in 2020 due to the pandemic.
Spanish income tax for 2021
Personal income tax in Spain
Previously, the top rate of personal income tax applied to income over €120,000. Now the government has introduced a new income band for general earnings over €300,000.
The state tax rate for this band is 24.5% for income received in 2021, compared to 22.5% previously.
This is only the state half of the income tax rates and around the same is applied again at regional level.
The combined top 2021 income tax rates for the key expatriate regions are:
- Andalucía – 48.2%
- Balearic Islands – 49.5%
- Canary Islands – 50.5%
- Cataluña – 50%
- Madrid – 45.5%
- Murcia – 47.4%
- Valenciana – 54%
Spanish tax on savings income
Savings income is taxed separately to general income and basically consists of interest income, dividend income, capital gains on the sale or transfer of assets, income derived from life assurance contracts and purchased annuity income.
A new 26% rate has been introduced for income over €200,000, so savings income in 2021 will be taxed as follows (there are no regional variations here):
|Taxable base €
||Income tax rate
| Up to 6,000
| 6,000 – 50,000
| 50,000 – 200,000
| Over 200,000
26% is a still a relatively low rate – for example, the top UK rate is 45% for interest and 38.1% for dividends.
However, if you expect to earn a high level of investment income, it is worth speaking to your local Blevins Franks advisers to find out how you can benefit from compliant arrangements to structure your investments to avoid paying too much tax, without impacting the growth potential.
Spanish wealth tax
The state budget introduces a higher rate of taxation for those with substantial wealth.
Worldwide wealth up to €10,695,996 is taxed the same as last year, with rates rising progressively from 0.2% for wealth up to €167,129 to 2.1% for wealth between €5,347,998 and €10,695,996. But now the top state rate for wealth above this limit has increased from 2.5% to 3.5%.
However, this increase only applies where the local autonomous community does not apply its own rates. Where it does, these continue to apply (and may or may not change from 2020, depending on the regional 2021 budget).
Andalucía, Balearic Islands, Cataluña, Murcia and Valenciana have all approved their own rates and this year they range from:
- Andalucía – 0.2 to 2.5% (all reduced from last year – see more about wealth tax rates in Andalucía)
- Balearic Islands – 0.28% to 3.45% (no change from 2020)
- Cataluña – 0.21% to 2.75% (no change from 2020)
- Murcia – 0.24% to 3% (no change from 2020)
- Valenciana – 0.25% to 3.5% (the top rate has increased from 3.12%, the other rates remain the same as last year).
Madrid currently applies a 100% relief of the wealth tax due, which effectively means that residents of the region do not pay any wealth tax at all, regardless of their wealth.
The Canary Islands have not approved their own rates so the above state rates apply.
Wealth tax will now be applied indefinitely. This tax was effectively abolished in 2008 but reinstated on a temporary basis during the financial crisis in 2011. It has been extended in successive budgets and will now be considered a permanent tax.
Inheritance tax in Spain
There are no changes to Spanish succession and gift tax at either state or regional level. Again, it pays to review your assets and take specialist advice to understand how the rates and allowances in your region will affect your heirs and establish how you can reduce this liability for them.
UK residents earning income in Spain
There have not been any budget changes here, but UK residents should note that third-party nationals are taxed at a higher rate than EU/EEA nationals.
So following Brexit, UK residents earning rental income from a Spanish property will now pay Spanish income tax at 24% instead of 19%.
Besides this, as a non-EU resident you can no longer offset the expenses involved in maintaining and renting out the property.
Spain’s ‘Beckham law’: Tax regime for ‘Inbound Assignees’
Commonly known as Beckham Law, a special tax regime is available for individuals who become Spanish tax resident as a result of an assignment to Spain.
Whereas last year they paid income tax at a flat 24% rate, from 2021 income over €600,000 is taxed at 47%.
Reducing your tax liabilities in Spain
Ask your local Blevins Franks advisers to review your investment portfolio, pensions and other assets. They can also evaluate your current tax liabilities, consider your personal situation and objectives, and look at what Spanish compliant arrangements would work for you and how much tax you could save – you may be very pleasantly surprised!
Arrange to speak to a local adviser in Spain