Spanish wealth tax is payable by residents and non-residents alike on worldwide assets. One can plan around and mitigate this tax as there are certain holding structures and circumstances which remove certain assets from the Spanish wealth tax regime or 'impuesto de patrimonio'. Also in some autonmous regions the wealth tax is Zero - Madrid and (as of September 2022) Andalcucia. But first.....
What is wealth tax?
A somewhat controversial tax, opposed by many, that places an extra liability on residents and non residents alike - over and above their normal tax obligations. For residents, this tax applies to the ownership of world wide assets less any allowable charges or debts. Therefore wealth tax is calculated on the net wealth of an individual. For non residents it is only applicable to assets held in Spain. Assets liable to the tax include immovable property, cars, cash, shares, jewelry etc. There is an allowance for mortgages, charges and loans. Below are the national rules. The autonomous regions have the power to amend allowances but only for residents. Non residents with assets in Spain are subject to the national rates.
The valuation of property for wealth tax purposes is based on the higher of; a) The cadastral value (ratable value) or b) The acquisition cost (as declared on the "escritura" title deed).
Official Valuation undertaken by the Tax authorities
There are special rules for valuing bank balances as well as other assets. Residency affects the scope of wealth tax. Residents and non residents are taxed as follows;
Spanish tax residents are liable to wealth tax on their worldwide assets. They also benefit from the following allowances:
General allowance €700,000 (€500,000 in Catalonia).
This allowance is available to reduce all net assets liable to wealth tax.
Habitual residence €300,000.
These allowances can effectively be doubled for a married couple - including the main residence allowance.
This allowance is available against your main residence in Spain and is in addition to the general allowance. If you have a business then there is an allowance which effectively excludes the value of the business subject to certain conditions such as the business being your main source of income.
Non Spanish Residents
Non Spanish residents are liable to wealth tax solely on assets located in Spain. They only benefit from the €700,000 allowance as their main residence will be outside Spain.
BUT here is the good news - You can mitigate or avoid wealth tax on your assets by using the following;
1. The 60% Rule
Wealth tax payable is capped subject to certain conditions - the main one being wealth tax plus income tax cannot exceed 60% of your overall combined taxable income. Read more about this rule here
It is possible that personal pension plans elsewhere within the EU, can benefit from an exemption to Spanish Wealth Tax. This may benefit all ex patriots who reside in Spain and who have consolidated rights in QROPS or QNUPS pension plans in Malta for instance.
3. Other potentially exempt assets
Household contents (excluding jewels, fur coats, vehicles, boats, art, and antiques), owner managed small businesses, family companies meeting certain conditions, intellectual property rights, and business assets where the activity is the taxpayer's main source of income and the activity is carried out by the taxpayer on his own account and on a habitual basis.
Company shares held by an individual are also exempt from wealth tax provided:
1.the company is a currently trading company
2.you own at least 5% of the share capital (or at least 20% including share holdings belonging to a spouse or other family members)
3.you carry out managerial duties for the company
4.you receive a salary for such duties which is at least 50% of your total net earnings
Please feel free to contact us for more information and advice bespoke to your individual situation.
Patrick Macdonald ASCI
International Financial Adviser