Spanish Wealth Tax
Information on the current status of Spanish wealth tax...
In September 2011 wealth tax was reinstated after being temporarily suspended in 2008. Although this was meant to be an extraordinary measure, it is still in place and will apply to wealth held until at least the end of 2016 (reportable and payable in 2017).
Note that wealth tax can vary depending on which region of Spain you are resident.
Spanish wealth tax is payable by residents and non-residents based on assets held at 31st December each year. Spanish residents are liable on their worldwide assets, and non-residents are liable for wealth tax on their Spanish assets only.
Allowances – residents
Each Spanish resident individual has a tax-free allowance of €700,000 plus a €300,000 allowance on his main home. A married couple resident in Spain therefore could have a total deduction of €2,000,000 (assuming assets are held jointly and the main home is in joint names). However, there are some regional differences, so you will need to check which allowance applies to you.
Allowances – non-residents
Non-residents receive the same individual allowance of €700,000 as above, but they do not receive any allowance against their Spanish property. Again, regional differences on allowance levels may apply.
State Tax Rates
Rates for wealth tax can vary for each autonomous region of Spain. Where a region has not specified their own rates, the following state tax rates will apply:
|Range (€)||Tax rate||Tax on band (€)||Cumulative tax (€)|
|0 - 167,129||0.2%||334||334|
|167,129 - 334,253|
|334,253 - 668,500||0.5%||1,671||2,506|
|668,500 - 1,336,999||0.9%||6,017||8,523|
|1,336,999 - 2,673,999||1.3%||17,381||25,904|
|2,673,999 - 5,347,998||1.7%||45,458||71,362|
|5,347,998 - 10,695,996||2.1%||112,308|
|10,695,996 and over||2.5%|
However, there are some regions that currently apply their own wealth tax rates, including Andalucía, Cataluña, Murcia, Comunidad Valenciana and Islas Baleares. You therefore need establish what the rates are in your region.
The following assets are exempt from wealth tax:
- Household contents (excluding jewels, fur coats, vehicles, boats, art, and antiques)
- Pension rights
- Owner-managed small businesses
- Family companies meeting certain conditions
- Shares in property investment companies where the company carries on a commercial activity
- Intellectual property rights in the author’s ownership
- Business assets (to qualify the activity must be the taxpayer’s main source of income and be carried out by the taxpayer on his own account and on a habitual basis)
Shareholdings are also exempt from wealth tax provided the company is a trading company and you own at least 5 percent of the share capital (or at least 20 percent including shareholdings belonging to a spouse or other family members). For exemption to apply you also need to carry out managerial duties for the company, and derive a salary for such activities which is at least 50 percent of your total net earnings.
Deductibility of Loans
A loan will be deductible in calculating your net wealth tax liability provided it was not used to buy or invest in assets exempt from Spanish wealth tax. For example, where a mortgage is for the purchase of the main home the value of which is covered by the main home exemption, no deduction is available for that mortgage.
For a non-resident, only Spanish liabilities would be taken into account but there is no exemption to consider. A Spanish mortgage would have to be attached to a Spanish property to be deductible for wealth tax purposes.
Limits to Wealth Tax
Cumulative wealth and income taxes cannot exceed 60 percent of the ‘general and savings taxable income bases’ of residents. This excludes from savings income any gains on assets held for more than one year, and the associated 19 percent/21 percent/23 percent tax. The limit is subject to paying a minimum of 20 percent of the full wealth tax calculation.
The liability cannot be reduced at all on assets that do not produce an income, e.g. a holiday home that is never let out.
There is no limit for non-residents.
The current value of the property is ignored for wealth tax purposes. Instead, property is valued at the highest of the following three values:
- the officially registered valor catastral
- the value given by the Spanish tax office taken into account for any other tax purposes
- the price in the purchase agreement (i.e. acquisition price)
Valuing a usufruct / Freehold Interest
Wealth tax is payable by both the holder of the usufruct and the holder of the freehold interest.
The value of the usufruct is calculated as 70 percent of the value of the property where the usufruct holder is less than 20. As the age of the usufruct holder increases, the value of the usufruct reduces by 1 percent for each year over 20 to a minimum of 10 percent of the value of the property.
The value of the freehold interest is calculated as the difference between the value of the property and the value of the usufruct interest.
Wealth tax is payable on whole-of-life and temporary purchased annuities. The assessable value is determined by capitalising the annuity using the official Bank of Spain base interest rate for the year, which is 3 percent for 2016.
For whole-of-life annuities, you then apply to the capitalised value the relevant percentage as with usufructs, based on the age of the person receiving the annuity. Your age is taken at 31st December each year, and so as you get older, the value to be included in your wealth tax return will decrease.
Bank balances are valued at the higher of the closing balance on 31st December or the average balance during the last three months of the calendar year. This information is generally provided by the bank.
Tax Returns and Payments
The wealth tax form has to be completed and tax paid generally between 2nd May and 30th June for the assets held at the previous 31 December. Married partners need to make separate returns reflecting their shares of any joint assets and liabilities in addition to any personal items.
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 must take personalised advice.