There are so many attractions and advantages to living on Mallorca. However, Spain’s higher taxes of recent years, and wealth tax, have made some residents re-consider whether they should live here or not. It would be a shame to leave this beautiful island because of taxes, but with specialist advice you may 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. Non-resident only pay on Spanish assets.
The tax was effectively abolished in 2008 but reinstated in 2011, supposedly as a temporary measure. It is still in place today.
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 €300,000. Non-residents just receive the individual allowance of €700,000. The tax rates range from 0.2% to 2.5%.
The tax is payable on the value of most of your assets, such as real estate, savings and investments, jewelry, art, cars, boats etc.
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 overseas assets over €50,000 on “Modelo 720” was introduced in 2013. Many commentators perceived it to be a way for the government to catch out people not reporting assets on their wealth tax returns. People have started hearing from the Spanish tax inspectors. Most enquiries appear to be related to discrepancies between assets reported on form 720 and wealth tax returns.
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. Use legitimate means of limiting your tax liabilities through tailored specialised advice.
Limiting wealth tax
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 on assets that do not produce an income, such as your home.
There may be other steps you can take to reduce a wealth tax liability, or eliminate it completely.
For example, Mar and Mrs X’s main home is worth €600,000 and they have investment funds of €3m in a share portfolio, all owned jointly. They 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 face an annual joint wealth tax liability of €7,400.
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, seek specialist advice to review your tax planning and the way you own your asset, and see if you can use Spanish compliant arrangements to lower your tax liabilities.
Wealth Tax Seminar
Wealth tax and inheritance taxes don’t affect everyone, but for those they do, the impact can be severe.
The Blevins Franks seminar will examine effective strategies for protecting your family’s wealth. It will look at reducing wealth tax and avoiding or reducing Spanish succession tax and UK inheritance tax
SANTA PONÇA, Country Club Santa Ponça
Tuesday 28th April, 10.30 for 11.00am till noon.
The seminar will separate fact from fiction and can advise you on the right way forward for you and your family.
For peace of mind, book your seminar place now. Call +34 971 719 181 or email firstname.lastname@example.org.
You may also book online at www.blevinsfranks.com.
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.
For more information and personalised advice, contact Blevins Franks on +34 971 719 181.
To keep in touch with the latest developments in the offshore world, check out the latest news on Blevins Franks Tax & Wealth Management Specialists.
Related articles to tax for foreigners living in Spain.
Blevins Franks Mallorca specialises in giving advice for tax-driven, wealth management investments. […] Blevins Franks Tax & Wealth Management Specialists
Blevins Franks Financial Management Limited (BFFM) is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Where advice is provided outside the UK, via the Insurance Mediation Directive from Malta, the regulatory system differs in some respects from that of the UK. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts and companies. Blevins Franks Tax Limited provides taxation advice; its advisers are fully qualified tax specialists. This promotion has been approved and issued by BFFM.
This article was written on the 24th of April, 2015.