With strategic tax and wealth management planning you may be able to significantly reduce wealth tax on your capital investments.
Spain continues to be a favourite destination for expatriates, including those making the most of their retirement years. There are many benefits to living in Spain, and with the wide variety of property and locations, from social coastal living to the peace and quiet of the countryside, there is a dream home for everyone.
Taxation can however spoil the dream for some, particularly wealthier individuals and families.
Besides the expected income and capital gains taxes, Spain additionally imposes an annual wealth tax.
You and/or your heirs may also be subject to the Spanish succession and gift tax rules. If you leave Spanish assets to your heirs, they will be liable on the amount they receive, regardless of where they live. Likewise, if you receive an inheritance or a lifetime gift as a resident of Spain, you will need to calculate your Spanish tax bill, regardless of where the assets are located.
Wealth tax is charged at progressive rates starting from 0.2% and rising up to 2.5%. This is under the state rules, however in Andalucía the top rate is 3.03%; in Balearic Islands it is 3.45%; in Cataluña 2.75%; in Comunidad Valenciana 3.12% and in Murcia it is 3.00%. In the Canary Islands it is 2.5%.
If you are resident in Spain you are liable to wealth tax on your worldwide assets, including property, investments, bank accounts, jewellery, art, cars, boats etc. If you are not resident only Spanish-based assets are affected. Some assets are exempt (e.g. pensions).
On the positive side, Spain does provide allowances which are generous enough to take many people out of the wealth tax net. However, those owning higher value properties and/or large investment portfolios can still face a large wealth tax bill each year.
Each individual benefits from a €700,000 personal allowance, and residents also receive up to €300,000 against the value of their main home. However, Cataluña has reduced the individual allowance to €500,000 and Comunidad Valenciana to €600,000. On the other hand, Madrid offers a 100% relief, so no wealth tax is payable.
Wealth tax planning
Both wealth and succession tax can be a real concern for higher net worth individuals, sometimes enough to prevent them living in Spain.
This is where strategic tax and wealth management planning can make the world of difference. Before deciding that Spain is too expensive tax wise, take specialist professional tax advice. Spanish tax legislation can be complex, but with a good understanding of how it works you could benefit from the many advantages it provides. Much depends on your situation, but you may be surprised at how much tax you can save, for both yourself and your family and heirs, if you talk to Blevins Franks.
There is not much you can do to reduce wealth tax on property. If you are a Spanish resident couple, owning it in both names will double the main home allowance to €600,000 (though you have to file separate wealth tax returns as it is an individual tax). If your property is worth more, you could consider downsizing your property because there are more tax planning options for capital assets.
You can investigate how to take advantage of the ‘60% rule’, where your cumulative wealth and income taxes cannot exceed 60% of your personal income taxable amount, subject to a minimum 20% of your wealth tax bill payable.
Those with larger investment portfolios should review the way they hold their assets, which can make a substantial difference to your tax liabilities (not only wealth tax).
For example, with help from an adviser, establish how much investment income you need each year, then calculate how much of your investment capital you need to keep available to earn this income – preferably without eating into the capital. You can then consider moving some or all of the rest of the funds into arrangements which, although you should not access them for a few years, fall outside the Spanish wealth tax net and so can provide considerable wealth tax savings.
With careful planning you can structure your investments to provide a number of different advantages. For example, potentially benefit from minimising wealth tax, income tax deferral, reducing succession tax for your heirs, estate planning, investment flexibility, asset protection and no exit tax if you leave Spain, all with one tax-compliant solution.
Contact Blevins Franks to discuss your options
Cross-border tax planning has only grown more complex over recent years. The Common Reporting Standard means you need to be extra careful to ensure you declare overseas assets and income correctly and that your planning arrangements are legitimate in Spain and anywhere else you may have tax liabilities. Specialist tax advice from Blevins Franks, with our 40 years’ experience of Spanish tax planning, can help you take advantage of all the complaint opportunities available in Spain.
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.