Wealth tax is an annual tax, payable on the total value of your taxable assets as at 31st December. However with specialist advice you can often avoid or reduce this tax liability.
There are so many attractions and advantages to living in Spain. However, there are some negatives too, and Spain’s higher income and savings taxes of recent years, with wealth tax on top of that, have made some residents re-consider whether they should live in Spain or not. It would be a shame to have to leave Spain because of taxes, but with specialist advice you may find you do not have to.
Wealth tax is an annual tax, payable on the total value of your taxable assets as at 31st December. If you are resident in Spain you are liable to the tax on your worldwide assets; if non-resident, then only on your Spanish assets.
The tax was effectively abolished in 2008 when the government approved a measure to apply a 100% tax credit against an individual’s wealth tax liability. It was reinstated just a few years later, in 2011, supposedly as a temporary measure, but it is still in place today for fiscal year 2015. With income tax rates having been reduced, the government may need to keep wealth tax in place for longer to compensate for lower tax revenues.
Wealth tax rules
Each resident individual has a tax free allowance of €700,000 plus a €300,000 allowance on his own home. If a couple owns a property in joint names, each gets the €300,000 allowance.
Non-residents receive the individual allowance of €700,000, but no allowance against their Spanish property.
The progressive state tax rates range from 0.2% for assets up to €167,129, to 2.5% on assets over €10,695,996. Some regions have higher rates. In Andalucía the top rate is 3.03%, in Murcia it is 3% and in Cataluña it is 2.75%.
The tax is payable on the value of most of your assets, such as real estate, savings and investments, jewelry, art, cars, boats etc.
Property is valued at the highest of the officially registered Valor Catastral; the value taken into account for any other tax purposes, or the price in the purchase agreement.
Some assets are exempt from wealth tax, such as household contents (but excluding jewels, fur coats, vehicles, boats, art and antiques); pension rights (but not purchased annuities); owner managed small businesses and business assets (with conditions). Certain shareholdings are exempt where you carry out managerial duties and derive a salary.
Loans are deductible in calculating your net taxable wealth provided they were not used to buy or invest in assets exempt from Spanish wealth tax.
Impact of Form 720
The obligation to report all your overseas assets worth over €50,000 on Modelo 720 was introduced in 2013. For people who had previously fully and correctly declared their income and assets on their tax returns, their tax burden should not have changed. But others will find they are paying more income and/or wealth tax as a result.
Form 720 is not a tax form, it is simply a form on which Spanish residents have to report their non-Spanish assets, including their share of assets held jointly. However, many commentators perceived it to be a way for the government to catch out people not reporting assets on their wealth tax returns. With asset reporting through Modelo 720, the scope for hiding assets and income from the taxman (which is tax evasion) has been very much reduced.
Following the submission of Modelo 720, people have started hearing from the Spanish tax inspectors. Most of these enquiries appear to be related to discrepancies between assets reported on the form and the wealth tax return (or absence of one).
There are ways that you can legally minimise income and wealth taxes, and while this will mean that people still have to make the correct declarations, they will have peace of mind that they are declaring correctly, and that they are unlikely to be questioned by the tax inspectors. This has always been Blevins Franks’ approach – to use legitimate means of limiting your tax liabilities through tailored specialised advice; advice which has given many of our clients just that peace of mind.
Limiting wealth tax
While wealth tax is an unpopular tax, there is some good news.
For a start, your cumulative wealth and income taxes cannot exceed 60% of the ‘general and savings taxable income bases’ of residents (but still excluding from savings income any gains on assets held for more than one year, and the associated tax rates). This is subject to paying a minimum of 20% of the full wealth tax calculation.
However, this liability cannot be reduced at all on assets that do not produce an income, such as your home and other property that is not let out.
There may be other steps you can take to reduce a wealth tax liability, or eliminate it completely. Let us look at Mr and Mrs X, who are resident in Spain.
Their main home is worth €600,000 and owned jointly. Their other assets include investment funds of €3m in a share portfolio, also held jointly. They have sufficient pension income and do not need any regular investment income. Although their individual share of the house is covered by the main home allowance, with their investment portfolio they still face an annual joint wealth tax liability of approximately €7,400. In regions like Andalucía it would be even higher.
However, after speaking to Blevins Franks and re-structuring their investments, they no longer have any wealth tax to pay at all.
If wealth tax, or other Spanish taxes, are a concern for you, contact your local Blevins Franks office. Our Spanish tax specialists would review your current tax planning and the way you own your assets, to see if you can use Spanish compliant arrangements to lower your tax liabilities – we have saved our clients a substantial amount of tax over the years.
Blevins Franks has decades of experience advising expatriates in Spain. We have in-depth knowledge of Spanish taxation and specialise in reducing tax on invested capital, pensions, wealth and inheritance.
Any questions? Ask our financial advisers for help.
18 May 2015
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.