Spanish wealth 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. However, it was reinstated in 2011, as part of austerity measures. At the time the intention was to apply it for two years, but it keeps being extended.
When Revenue Minister, Cristóbal Montoro announced the 2016 draft budget in August, he described it as “rigorous and consistent”. As part of the proposals, the Government agreed to extend wealth tax to 2016, in order to help sustain the consolidation of public finances.
It was the first time that the Government announced the budget so early, but this is a general election year in Spain (20th December 2015).
The budget has gone through the normal parliamentary procedures. After being approved by the Senate, it was approved by Congress on 20th October, after including some amendments, with the government political party’s votes – and despite the European Commission warning about the deficit target.
Wealth tax rules
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.
Each resident individual has a tax free allowance of €700,000, but Islas Baleares increased its individual deduction to €800,000 from 1st January 2015, 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 state progressive state tax rates range from 0.2% for assets up to €167,129, to 2.5% on assets over €10,695,996. The Autonomous Communities can vary these rates. In Islas Baleares the tax bands differ slightly from the state ones, but the rates remain the same.
The tax is payable on the value of most of your assets, such as real estate, savings and investments, jewelry, art, cars, boats etc.
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.
Limiting wealth tax
Your cumulative wealth and income taxes cannot exceed 60% of the ‘general and savings taxable income bases’ of residents (but 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 liability.
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, particularly on your investment assets.
If wealth tax, or other Spanish taxes, are a concern for you, consult an experienced tax and wealth management advisory firm like Blevins Franks to establish if you can lower your wealth tax liability and mitigate higher taxes on your savings and investments.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon their 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.
Blevins Franks Seminar
Separating fact from fiction
• Automatic exchange of information – How will the new regime affect you?
• Wealth tax – what are the solutions to avoid it?
Tuesday 17 November
Castillo Hotel Son Vida
Palma de Mallorca
Click here for more details and to reserve your place, or call 971 719 181.
More about Blevins Franks tax advisors
For more information and personalised advice, contact Peter Worthington, Senior Partner at Blevins Franks, on +34 971 719 181 or firstname.lastname@example.org.
To keep in touch with the latest developments in the offshore world, check out the latest news on Blevins Franks Tax & Wealth Management Specialists.
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This article was written on the 03rd of November, 2015.