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Junta President, Juanma Moreno, announced yesterday that wealth tax levies (el impuesto de patrimonio) would be eliminated across the region, corresponding with a reduced income tax rate, and the cancellation of taxes applied to water utilities for the remainder of this year.

The sweeping changes make Andalucía one of the most tax-efficient areas within Spain, second only to Madrid, with amendments to the tax regime in place from Wednesday 21st September 2022.

Wealth tax currently comprises 0.6% of the regional governmental income, equivalent to €95 million a year. The announcement is expected to have a beneficial impact on investment, entrepreneurs, businesses and high-net-worth individuals.

Details of New Tax Reforms in Andalucía

Like much of the world, Spain has been struggling with inflation in a sluggish global economy and has experienced a drop in tax revenues. Half of the top 2019 taxpayers left Andalucía in 2020, effectively taking with them an estimated €3.5 million in wealth taxes and €14 million in personal income tax contributions.

The regional president has stated that his ambition is to make Andalucía an appealing long-term or permanent destination for foreign nationals and Spanish citizens, as well as businesses and investors, incentivised by the favourable tax regime.

Over time, he expects to boost economic activities and employment, with a target of attracting 7,000 new residents, and tax reforms applied to:

  • Residents currently living in Andalucía
  • Non-residents who hold assets in the region

Income tax rates are dropping by 4.3% in the lowest income brackets, which is a larger reduction than the amount by which salaries are predicted to rise, reducing tax obligations by around €125 million.

Taxes charged on water supplies are also being suspended entirely for 2023, reducing household and business utility costs by €140 million.

Changes to tax levies are effective from 2022, which means that wealth tax is no longer payable with immediate effect, replacing the previous scheme whereby taxpayers would be liable to pay between 0.2% and 0.5% on worldwide assets valued above the national threshold.

Tax Efficiency Variations Between Spanish Regions

Each of the 17 regions within Spain has the authority to introduce reduced tax rates or exceptions, but before now, the only other region that has scrapped wealth tax is Madrid. We don’t yet know whether Murcia, the other region also run by a conservative government, will follow suit.

Andalucía was already an attractive region in terms of culture, climate and living standards, and introduced changes to inheritance tax rules in 2020, which mean around 90% of inheritors are not liable to pay anything.

Children and spouses do not pay inheritance tax on estate assets worth up to €1 million and pay a nominal tax on higher inheritance values. The same rule applies even where immediate family members are not residents in Spain, including non-EU residents.

The contrasts between regions can be significant, with a state tax rate applied first and followed by the regional charges.

Wealth Tax Rates in Spain by Region

Spanish federal wealth tax was reintroduced in 2011 and generally exempts the first €700,000 of net wealth, with tax payable by residents and non-residents who own Spanish assets valued above this with a €300,000 deduction against a primary residential property.

Spanish state wealth tax rates are as follows:

Tax Band Tax Applied
Up to €700,000 0%
€700,000 – €867,129 0.2%
€867,129 – €1.034 million 0.3%
€1.034 million – €1.368 million 0.5%
€1.368 million – €2.037 million 0.9%
€2.037 million – €3.374 million 1.3%
€3.374 million – €6.048 million 1.7%
€6.048 million – €11.396 million 2.1%
€11.396 million and above 3.5%

The tax approaches thereafter vary between regions:

  • Andalucía and Madrid a offer a 100% wealth tax exemption.
  • The Balearics adds up to 3.45% to state tax rates, with an additional tax up to 3% applied in Murcia.
  • In both Cataluña and Valencia, the wealth tax exemption is reduced to €500,000 with additional charges up to 2.75% in the former and 25% in the latter.

These considerable differences in tax exposure demonstrate why tax planning is so important for expats moving to Spain or residents structuring their assets to ensure they do not pay unnecessarily high rates.

The annual wealth tax exemption for an individual living in Andalucía could now lower their tax liability by several thousand euros per year and considerably more if they own property portfolios or higher-valued assets.

Reduced Income Tax Rates in Andalucía

While the scrapped wealth tax is excellent news for investors and residents in Andalucía, the income tax changes are also valuable.

The regional government had already announced reductions in income tax and succession tax obligations from 2022 onward, with the top regional income tax bracket of 22.5% added to a federal tax of 24.5% on income of €300,000 and above. As part of this new announcement, income tax rates will be reduced, most relevant to taxpayers earning from €12,450 to €35,200 – brackets are currently taxed as follows:

Income Bracket National Income Tax Regional Income Tax Total Tax Payable
€0 – €12,450 9.5% 9.5% 19%
€12,450 – €20,200 12% 12% 24%
€20,200 – €35,200 15% 15% 30%
€35,200 – €60,000 18.5% 18.5% 37%
€60,000 – €300,000 22.5% 22.5% 45%
€300,000 and above 24.5% 22.5% 47%

With this week’s reforms, the lowest three tax brackets will see regional income tax almost halved by 4.3%, with adjusted tax rates of:

Income Bracket National Income Tax Regional Income Tax Total Tax Payable
€0 – €12,450 9.5% 5.2% 14.7%
€12,450 – €20,200 12% 7.7% 19.7%
€20,200 – €35,200 15% 10.7% 25.7%
€35,200 – €60,000 18.5% 18.5% 37%
€60,000 – €300,000 22.5% 22.5% 45%
€300,000 and above 24.5% 22.5% 47%

The impact on a taxpayer at the top of the third tax bracket with an annual income of €35,200 would be a tax reduction of over €1,500 a year.

Wealth Management Advice for Expats in Spain

We trust this news is welcome for residents and taxpayers living in Andalucía. Still, it may also be of interest to foreign nationals who are exploring the tax efficiencies available or the advantages of choosing one Spanish region over another.

Please get in touch if you would like further information about these recently announced tax reforms and how they apply to you.

Chase Buchanan Wealth Management has offices in both Marbella and Javea. We can provide up-to-date advice about how tax reforms affect your portfolio or may support your long-term estate planning requirements.