Spain’s 2023 budget and tax plans

Spain’s 2023 budget – both the state and autonomous community regional governments have been busy planning their budgets for next year, which includes reviewing tax rates and allowances. There have been various statements over recent weeks, so here we summarise the key tax elements.

While Andalucía hit the headlines first with the surprise announcement that it was effectively abolishing wealth tax in the region, this was quickly followed by the national government outlining its plans to introduce a new state ‘solidarity tax on large fortunes’ – so another form of wealth tax – for the next two years.

National budget and tax reforms

With inflation continuing to impact households, consumers, businesses, and the economy, the Spanish government is looking to redistribute wealth by increasing taxes on the very wealthy and reducing taxation for those on low incomes. It hopes to increase its tax revenue by €3.14 billion next year.

Solidarity tax on large fortunes

The biggest development is the proposed introduction of the new impuesto de solidaridad a las grandes fortunas. Initially announced on 29 September, the Spanish government has finally published the proposed text for this new tax.

To help speed up the parliamentary process, the text was included as an amendment to the bill for the establishment of temporary taxes on energy, credit institutions and financial credit establishments.

The key points are:

• It is proposed as a temporary measure for two years, and will then be reviewed. It will either apply for 2022 and 2023, or for 2023 and 2024, depending on whether the bill is passed this year or not.
• It will only be imposed on those with a net wealth over €3 million (on worldwide assets for Spanish residents).
• Spanish tax residents can benefit from a €700,000 general allowance, plus a €300,000 deduction against the main home. Therefore, generally speaking, this tax only affects those with wealth over €4 million.
• Progressive tax rates will range from 1.7% for wealth over €3,000,000 to 3.5% for wealth over €10,695,996.
• Taxpayers will not pay both wealth taxes in full – the amount paid in the regular wealth tax (as calculated under the regional rules) will be deducted from the solidarity tax liability. Since Andalucía and Madrid do not levy wealth tax, tax solidarity tax will be fully payable.
• A taxpayer’s combined solidarity, wealth and income tax liability cannot exceed 60% of the sum of the personal income taxable bases. If it does, the tax liability will be reduced until the 60% threshold is reached (maximum reduction 80%).
• This tax is being imposed at state level and the regional governments cannot amend it.

The purpose of this new tax is to collect more revenue from taxpayers with greater economic capacity, to help the government tackle the energy and inflationary crisis. It will also harmonise wealth taxation between the different autonomous communities.

The solidarity tax still needs to be debated and passed by parliament, so it’s possible these proposals may change – or that the new tax does not get approved at all.

Savings tax to be increased

Another key proposal to improve tax revenue next year is to increase the rate applied to high levels of savings income. This covers interest, dividends, capital gains made on the sale or transfer of assets, income derived from life assurance contracts, and purchased annuity income.

If approved, the progressive rates applied to savings income will increase as follows:

This measure is included in the General State Budget Act for 2023, which is in the process of being debated by parliament. It may be amended before it is approved.

Tax cuts at the state level

The Budget Act also includes reductions in personal income tax rates for low earners for 2023 and 2024.

If approved, the reduced rate of income tax will apply to individuals earning under €21,000 a year, an increase from the current €18,000.  Those earning less than €15,000 will be exempt from income tax (currently €14,000).

Additionally, corporate income tax will reduce from 25% to 23% for businesses with net annual turnover under €1 million.

You can learn more about Spanish taxes by downloading our free guide.

Regional budgets and tax news

Andalucía

On 20 September the Andalucía government announced that, with immediate effect, it will apply a 100% relief for wealth tax. This means that taxpayers living in the region will not have a wealth tax liability in 2022 or going forward.

If, however, their wealth amounts to over €3 million, they will need to pay the new state solidarity tax for the next two years, presuming it goes ahead.

Andalucía also modified the general income tax scale rates, so that most taxpayers earning over €12,450 should see a small improvement in their tax bill.   In addition, the “mínimo personal y familiar” was increased in order to reduce the tax burden for residents with fewer economic resources.

Comunidad Valenciana

On 27 September the regional president announced a series of reforms to reduce income tax for most of its residents.

Income tax rates will be reduced for those earning under €60,000 a year, which will benefit 97.4% of taxpayers living in the region.  This will be applied retroactively for 2022 income (as declared in your 2023 tax return).

The local tax-exempt minimums and deductions will also be increased.

These proposals still need to be confirmed.

Murcia

The regional income tax rate in Murcia will be reduced by 4.1%.

The regional government calculates this will benefit 96% of those required to submit income tax returns.

Madrid

Madrid will also reduce its regional tax personal income tax by 4.1% next year.

Balearic Islands

Fiscal incentives announced by the regional prime minister include a deduction of 90% of the tax base for corporate and income tax for non-residents who promote job creation in the islands.

Besides the local initiatives, Spain’s state General Budget Act 2023 also introduces a special tax system for the Balearic Islands, to bring it more in line with the Canary Islands.

Canary Islands

Tax measures in the proposed Canary Islands 2023 budget include extending the first four income bands for the regional half of income tax. This will reduce the amount of income tax paid and help counter high inflation. The government also plans to increase the current tax deductions by between 20% and 40%.

Both these tax measures would be retroactive to 1 January 2022, to apply to 2022 income (tax paid in 2023).

Understanding how Spain’s 2023 budget might affect you

These annual budgets and tax plans are a good prompt to review your tax planning each year.

Consider what rules have changed since your last review, bearing in mind that you may not be aware of all of them, and check whether you are making the most of all the available allowances and tax-efficient opportunities. For the best results, and to make sure you have not missed anything, take personalised advice from a cross-border specialist with an understanding of both tax regimes.

Blevins Franks has been helping UK nationals relocate to Spain for more than 45 years. Our advisers, who live locally, have an in-depth knowledge of the Spanish tax regime and are supported by teams of tax, pensions, and investment specialists based in the UK and throughout Europe.

Contact Blevins Franks today.