The Spanish tax regime in 2023 is very different from the UK’s and can be complicated. On first arriving in Spain, it is important to adjust your tax planning to suit the local tax rules and opportunities.
It is then always worth reviewing your tax planning once a year, to ensure it is up to date and continues to protect you and your family from paying unnecessary tax. Understand how any changes in tax regulations may impact you, plus consider whether any changes in your personal circumstances mean you should adjust your financial planning.
The biggest tax reform over recent years is Spain’s new ‘solidarity tax on large fortunes’ which was suddenly announced at the end of last September. The good news, though, is that it only affects very wealthy individuals.
Tax on savings income
In Spain, income is split into general income and savings income, and subject to different progressive tax rates.
Savings income consists of interest and dividend income, capital gains made on the sale or transfer of assets, income derived from life assurance contract and pensions annuity income.
Two new tax bands have been introduced there, so that those earning higher investment income could pay more tax. The 2023 rates are as follows:
|Up to €6,000
|€6,000 to €50,000
|€50,000 to €200,000
|€200,000 to €300,000
These savings tax rates do not vary per region.
Personal income tax rates (general income)
All other income is classed as general income and the scale rates applied are made up of state tax rates and regional tax rates, so there are some variations over the regions.
At the state level, the 2023 budget included measures to ease the income tax burden on low earners for 2023 and 2024. Some regions have also approved changes to the regional tax rates for 2023.
In Comunidad Valenciana, the combined income tax rates now range from 18.5% for income up to €12,000, to 54% for income over €300,000. Local residents will now pay a little less tax for income under €42,000.
In Murcia, the combined income tax rates now range from 19% for income up to €12,450, to 47% for income over €300,000. This is similar to last year’s rates, just very slightly less.
In Andalucía, 2023 income tax rates start at 19% for income up to €12,450 to 47% for income over €300,000.
The scales rates of income tax in the Balearic Islands currently start at 19% for income under €10,000 then rise over 13 income bands to 49.5% for income from €300,000 upwards.
In the Canary Islands, the income tax rates currently range from 18.5% for income up to €12,450 to 50.5% for over €300,000.
Cataluña’s starting rate is currently 20% for income up €12,450, hitting 50% for income above €300,000.
If you live or are moving to Madrid, the scale income tax rates have increased a little for 2023, with a starting rate of €21.1% for income up to €12,450 to 45.9% for over €300,000.
The new, but temporary, ‘solidarity tax on large fortunes’ was approved at the end of December and applies for the 2022 and 2023 tax years (when it will be reviewed). 2022 labilities will be due between April and June this year.
In summary –
It only applies to those with net wealth above €3 million (worldwide assets for residents).
The progressive tax rates are 1.7% for wealth over €3 million, then 2.1% for wealth over €5,347,998, and 3.5% for over €10,695,996.
Spanish tax residents get a general €700,000 allowance plus €300,000 against the main home. Therefore, solidarity tax only really affects those with wealth over €4 million.
If you pay Spain’s regular wealth tax, you deduct the amount paid from your solidarity tax liability, so you do not pay tax twice.
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 of 80%).
This is applied at the state level; autonomous communities cannot amend it.
The start-up law – digital nomads and the Beckham law tax regime
After years of negotiation, the law for the promotion of start-up ecosystem companies has been approved. Its main objective is to attract and retain investment and talent in Spain and the key new features relate to immigration and taxation. A new ‘digital nomad visa’ has been created and the so-called ‘Beckham tax regime’ (which originated when David Beckham was playing for Real Madrid) has been modified.
This special tax regime can apply to individuals who become resident as a consequence of working in Spain – and has now been expanded to include teleworkers and entrepreneurs. If you meet the requirements, you can be taxed as a non-resident for your year of arrival and the following five years.
You can now apply if you were not a tax resident there for the previous five years (it used to be ten), and it is available to those on a non-EU/EEA employment contract and non-EU/EEA nationals who obtain the residence visa for teleworkers.
The rules are detailed and complex, so if you think you are eligible, seek personal advice.
Wealth and succession taxes
There are no changes to the Spanish wealth tax or Spanish succession and gift tax for 2023.
Andalucía and Madrid residents currently do not pay any wealth tax (for Andalucía this came into effect in 2022) but will have to pay the new solidarity tax if their worldwide wealth is above €4 million.
Spanish tax planning 2023
Whether or not the new solidarity tax affects you, reviewing your tax planning from time to time can prove very effective. The way you hold your assets can make a significant difference to how much tax you will pay, and can also impact your estate planning.
At Blevins Franks, we have 45 years of experience advising UK nationals on their Spanish tax planning. Our advisers are cross-border specialists, with deep knowledge of both the Spanish and UK tax regimes and how they interact. They’ll be happy to review your financial planning to ensure you are taking advantage of the tax planning opportunities living in Spain has to offer.
Contact us now.