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Spanish Wealth Tax

Information on the current status of Spanish wealth tax...

On December 2008, the Spanish government approved a measure to apply a 100% tax credit against an individual’s wealth tax liability from 1st January 2008, and to remove the requirement to file a wealth tax return. This measure effectively abolished wealth tax from that date.

However, in September 2011, wealth tax was reinstated as a temporary measure, to apply for 2011 and 2012 (i.e. assets held at 31st December 2011 and 2012 - tax payable in 2012 and 2013).  The allowances are much higher than previously.

Note that wealth tax can vary by region.  The Comunidad Valenciana (Valencia, Alicante and Castellón provinces), Islas Baleares and Madrid are continuing to apply a 100% tax credit, so wealth tax does not apply in these regions.

Spanish wealth tax is payable by non-residents and residents based on assets held at 31st December each year.  Spanish residents are liable on their worldwide assets, and non-residents are liable to wealth tax on their Spanish assets only.

Allowances – residents

Each individual has a tax free allowance of €700,000 plus a €300,000 allowance on his own home.  A married couple resident in Spain therefore has a total deduction of €2,000,000 (assuming assets are held jointly and the main home is in joint names).

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.

State Tax Rates

The state rates are the same rates that applied in 2007:

From € To € Band € Tax Rate Tax on Band € Cumulative Tax €
Nil 167,129 167,129 0.2% 334 334
167,130 334,253 167,124 0.3% 501 836
334,254 668,500 334,247 0.5% 1,671 2,507
668,501 1,337,000 668,500 0.9% 6,017 8,523
1,337,001 2,673,999 1,336,999 1.3% 17,381 25,904
2,674,000 5,347,998 2,673,999 1.7% 45,458 71,362
5,347,999 10,695,996 5,347,998 2.1% 112,308 183,670
Over 10,695,996
2.5%

Rates in Andalucía

From € To € Band € Tax Rate Tax on Band € Cumulative Tax €
Nil 167,129 167,129 0.22% 368 368
167,130 334,253 167,124 0.33% 552 919
334,254 668,500 334,247 0.55% 1,838 2,757
668,501 1,337,000 668,500 0.99% 6,618 9,375
1,337,001 2,673,999 1,336,999 1.43% 19,119 28,494
2,674,000 5,347,998 2,673,999 1.87% 50,003 78,497
5,347,999 10,695,996 5,347,998 2.31% 123,539 202,036
Over 10,695,996
2.75%

Exempt Assets

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% of the share capital (or at least 20% including shareholdings belonging to a spouse or other family members), and you carry out managerial duties for the company, and you derive a salary for such activities which is at least 50% 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.

Limits to Wealth Tax

Cumulative wealth and income taxes cannot exceed 60 percent of:

  • The ‘general and savings taxable income bases’ of residents (but still excluding from savings income any gains on assets held for more than 1 year, and the associated 19%/25%/27% tax).
  • Subject to paying a minimum of 20% 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.

Property Value

Property is valued at the highest of:

  • the officially registered Valor Catastral
  • the value taken into account for any other tax purposes
  • the price in the purchase agreement

Liabilities in general reduce taxable wealth, but not where it is a loan used to buy an asset that is specifically exempt or covered by exemptions.  So where a mortgage is for the purchase of the main home the value of which for wealth tax 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.

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% 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% for each year over 20 to a minimum of 10% 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.

Purchased Annuities

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 (e.g. 4% for 2011).

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

Bank balances are valued at the higher of the closing balance on 31st December or the average balance during the 4th quarter.  This information is automatically given by the bank.

Returns and Payments

The wealth tax form has to be completed and tax paid between 2nd May and 1st July for the previous 31st December.  Husband and wife 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.

Information by Blevins Franks Tax Limited
The Blevins Franks Group has been providing integrated wealth management and tax planning to expatriates in Europe since 1975.
Offices in the Costa del Sol, Costa del Almeria, Costa Blanca, Costa Brava, Canary Islands and Balearics.
Visit the website for contact details of each office
In the UK please call 020 7336 1116
BLEVINS FRANKS/e-mail
Copyright © Blevins Franks 2011 All Rights Reserved
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