Last Updated on 6th September 2024
Wealth tax is often considered a controversial tax charge, particularly for expats relocating to Spain or other European Union countries where annual wealth taxes are a normal part of the taxation landscape.
It is always worth reviewing your overall tax profile and position before making any decisions since lower tax burdens in other areas or the availability of generous tax allowances may mean that – whether or not your assets are subject to wealth tax – you may be eligible for tax efficiencies that reduce your wider tax burden.
In this article, we’re looking at the Spanish Impuesto de Patrimonio or wealth tax and why exposure to this charge depends on where in Spain you live and your status as a non-resident or Spanish tax resident.
What Is the Spanish Wealth Tax Charge?
The basics are that residents and non-residents living in Spain with a net wealth of at least €700,000 or more may be subject to an annual wealth tax, calculated yearly on the 31st of December. One of the caveats is that autonomous governments have the right to set their own tax allowances, below which wealth tax is not payable.
Some regions in Spain have a 100% wealth tax exemption. Currently, municipal communities with total wealth tax relief include Andalucía and Madrid.
However, reforms introduced in the 2022/23 tax year mean that, in these specific regions, you may instead be liable to pay a Solidarity Tax, which acts in lieu of a wealth tax but remains a temporary taxation designed to tackle ongoing inflation.
Key Information About Wealth Taxation in Spain
The summary below illustrates the various allowances, exemptions and factors that will influence your obligation to pay wealth tax in Spain and how the tax charge may be calculated:
- Wealth tax is based on your total net assets as of 31st December each year – less any charges, debts or obligations, which may reduce your wealth to below the applicable threshold.
- Individuals are only usually required to submit a wealth tax declaration if their net taxable wealth exceeds all available deductions and allowances or is above a net value of €2 million.
- Across Spain, those subject to wealth tax can claim an allowance of €300,000 for each owner against the value of their primary residence.
- Other allowances apply, with regional allowances of up to 100%, which are then replaced with the Solidarity Tax. In municipalities with no set allowance, the standard is €700,000 per taxpayer.
After allowances and deductions, the actual tax rates applied to your net wealth also depend on the remaining assessed value. The progressive tax tables start at 0.2% and rise to 3.5%, although the highest rates are payable by only those with a taxable base above €10.695 million.
Understanding Your Spanish Wealth Tax Liability Based on Your Residency Status
We’ve noted that residents and non-residents may be exposed to wealth tax, but the contrast is that non-residents are only taxable against assets held within Spain.
Although recent updates mean that regional tax authorities can apply municipal wealth tax levies against non-EU citizens who are not tax residents in Spain, the standard €700,000 deduction remains applicable.
Spanish tax residents pay wealth tax against all worldwide assets, but ample tax allowances are available, meaning most people have a small tax charge to pay, if at all. Assets included in the wealth tax calculation can consist of:
- Property – less the primary home allowance.
- Cash held in bank accounts and investment assets.
- Luxury items such as boats, premium vehicles and jewellery
- Life insurance and annuities.
- Intellectual property rights and royalties.
Once you have arrived at a total net wealth figure, after allowances, called your ‘taxable base’, you can then review the tax rate you are obligated to pay. The initial tax liability starts at €334.26 for a taxable base of up to €167,129, with a wealth tax charge of 0.3% against a balance of up to €167,123.
Assets Excluded From Spanish Wealth Tax Calculations
Importantly, several categories of items are excluded, such as household contents or possessions that are not considered luxury assets. Intellectual property rights are also exempt from wealth tax if the taxpayer is the author of the work, and financial products such as pension entitlements are excluded.
Business assets are not usually included within wealth tax computations, provided they originate from your primary economic activity. Shares are also commonly exempt, provided they meet the following requirements:
- You own 5% or more of the share capital or own 20% or above in a family-owned business.
- You have managerial duties within the business and claim a salary that comprises 50% or more of your net income.
- The business in which you hold shares is not involved primarily in movable or immovable property.
In some circumstances, taxpayers may also be subject to a cap on the total wealth tax they are expected to pay when combined with their personal income tax liability. Spanish wealth tax law states that the total of both taxes cannot exceed 60% of the income and savings used to assess personal income tax obligations.
The Spanish Solidarity Tax for Great Fortunes
The Spanish government introduced a secondary tax called the Solidarity Tax for Great Fortunes (ISGF) in December 2022. The tax applies to residents and non-residents with wealth exceeding €3 million living in regions with significant wealth tax allowances or 100% exemption. As before, only Spanish-based assets count towards this total for non-residents.
Note that this temporary wealth tax has been extended into 2024 to supplement tax revenues following periods of high inflation—it may, therefore, be abolished or made a permanent part of the tax regime.
The tax applies to just 0.1% of Spanish taxpayers, with tax rates of:
- 1.7% for taxpayers with a net wealth of €3 million to €5.348 million.
- 2.1% for those with a net worth of €5.348 million to €10.696 million.
- 3.5% for taxpayers with a net wealth of over €10.696 million.
Taxpayers already subject to wealth tax are not liable to pay the Solidarity Tax—it is only relevant in regions where wealth tax has been significantly reduced or abolished, and tax allowances remain claimable.
Professional Guidance Managing Spanish Wealth Tax Liabilities
It is always important to consult an experienced tax adviser with in-depth knowledge of wealth tax inclusions, exclusions, exemptions, and allowances to ensure any assets are correctly categorised to avoid paying unnecessary taxes.
The system can be complex, and there are often opportunities to structure your assets to optimise tax efficiencies while remaining fully compliant with the mandatory declarations and tax obligations linked with assets that fall above the wealth tax or solidarity tax thresholds.
Please contact the Chase Buchanan teams in Spain for further assistance. Our offices are located in Marbella and Javea, with an additional office in Tenerife for expats living in the Canary Islands.
*Information correct as at June 2024