Taxes per se are really painful. But maybe the wealth tax is the winner in that sense. It seems really unfair to build your wealth just to get it taxed afterwards. Nevertheless, this article may help alleviate the situation. We will first go through the main Spanish wealth tax percentages. Then, we will move to the main optimization strategies that will enable you to save money and avoid its payment.
What is the Spanish Wealth Tax?
The wealth tax in Spain (also known as “impuesto de patrimonio”) is a tax that both residents and non-residents must pay on their assets. It was reintroduced during the financial crisis in the country, and it is a tax that must be paid on top of other ones like the income tax or the capital gains tax.
Many foreigners are surprised when they find out that they need to pay this percentage. And that is because it is somewhat unique. For example, there is no such equivalent thing in the UK.
We are talking about an individual tax that must be submitted individually, each year. There is not the possibility to do it jointly with your partner or spouse.
How is Wealth Tax charged?
As with many of the taxes paid in the Spanish territory by foreigners, there are some differences when it comes to residents and non-residents.
On the other hand, this tax is applied to the net amount of your worldwide assets if you are a tax resident in the country. For non-residents, it only applies to the net assets possessed in Spain.
Find out here whether or not you are a resident for tax purposes in this article, which will be very useful to understand the following sections.
Nevertheless, not all types of assets would be taxed here. You will pay for your real estate properties, for your savings, cars, jewelry, pieces of art (even though there are some exemptions here), boats, and other investments.
Spanish Wealth Tax exemptions
Which assets won’t be levied on?
In that sense, the are certain exemptions you can benefit from.
You won’t have to pay wealth tax on any household contents apart from the ones mentioned before (like art), on shareholdings on family companies, on commercial assets, on intellectual property rights, or on pension rights, just to mention a few (learn more on how pensions are taxed here).
WHAT ASSETS WILL BE TAXED?
| Type | Details |
|---|---|
| ✔ Taxable Assets | Real estate properties, savings, cars, jewelry, pieces of art (even though there are some exemptions here), boats, and other investments. |
| ✖ Non-Taxable Assets | Household contents except the mentioned before (like art), shareholdings on family companies, commercial assets, intellectual property rights, pension rights, etc. |
Who is liable for the Wealth Tax return in Spain?
As we mentioned in the previous section, both residents and non-residents are liable for the wealth tax. Nevertheless, that will only happen if their total assets are worth more than a certain amount, as there are some allowances.
No matter if you are a tax resident or not in the Spanish territory, you will have a tax-free allowance of €700,000.
In Catalonia and Extremadura, that allowance is lower, €500,000. Aside from that, and provided that you are a resident taxpayer, you also have an additional €300,000 allowance for your own property.
On the other hand, in other communities, it is less, as in Aragon which is equivalent to €400,000.
This helps us solve the question regarding if you are liable to the wealth tax or not.
If you have assets whose value is lower than the possible allowances (that depends on your resident status), you don’t need to worry about paying the Spanish wealth tax. But, if the assets are valued higher… you will have to pay.
But, how much exactly?
Wealth tax for residents
- Residents must pay wealth tax (as well as income tax) for the assets they possess both in Spain and in the rest of the world
- We will explore the exact rates in the next section, but for now, bear in mind that residents have many tax allowances that help them pay less
- The exact deductions vary depending on the region and usually range from 500,000 € to 700,000 € deductions
- Besides, your main home always offers a 300,000 € deduction
- Residents must submit the wealth tax declaration, provided that after applying for these allowances, the net result is positive, or if the gross value of their assets exceeds 2 million euros
Wealth tax for non-residents
- Opposed to the case of residents, non-residents will JUST pay wealth tax on Spanish-held assets
- There is the option of applying regional wealth tax regulations to non-residents in third countries (outside the EU)
- If that is not the case, you can benefit from a 700,000 € deduction per person
- And you will have to submit the wealth tax declaration also if the net result is positive or the value of your Spanish assets exceeds 2M
What are the exact rates for the wealth tax?
This is where we find the first difference among Spanish regions. Because some regions follow the general-national rule, and some others apply their own. Which are those exact differences?
The general rule would be to tax from 0.2% to 2.5% depending on your overall wealth. This means that the larger your wealth, the more you will have to pay. The wealth tax is a progressive tax. In the table below you will find the applicable state scale:
| Settlement basis | Fee | Other net base | Applicable rate |
|---|---|---|---|
| Up to euros | Euros | up to euros | Percentage |
| 0.00 | 0.00 | 167.129,45 | 0,2 % |
| 167.129,45 | 334,26 | 167.123,43 | 0,3 % |
| 334.252,88 | 835,63 | 334.246,87 | 0,5 % |
| 668.499,75 | 2.506,86 | 668.499,76 | 0,9 % |
| 1.336.999,51 | 8.523,36 | 1.336.999,50 | 1,3 % |
| 2.673.999,01 | 25.904,35 | 2.673.999,02 | 1,7 % |
| 5.347.998,03 | 71.362,33 | 5.347.998,03 | 2,1 % |
| 10.695.996,06 | 183.670,29 | And higher | 2,5 % |
Nevertheless, there are certain Autonomous Communities in Spain that can charge a greater percentage; like Catalonia, Valencia or Andalucía.
Let’s see the percentages of wealth tax according to the Autonomous Communities:
- Catalonia: percentage between 0.21% and 2.75%
- Asturias: percentage between 0.22% and 3%
- Region of Murcia: percentage between 0.24% and 3%
- Andalusia and Cantabria: percentage between 0.24% and 3.03%
- Community of Valencia: percentage between 0.25% and 3.12%
- Balearics: percentage between 0.28% and 3.45%
- Extremadura: percentage between 0.3% 7 3.75%
But not all are bad news. Because regions also differ when it comes to allowances. For example, in Madrid there is a 100% allowance, meaning that you don’t need to pay wealth tax. And in La Rioja, the bonus is 75%.
Important note. Even though there are some differences depending on the region you are located in, that only hold for resident taxpayers. If you are a non-resident, no matter where your assets are located, the general rule will be applied to you.
Do you have any doubts so far? Ask our lawyers anything (or continue reading for more information):
Which is the asset value that the Wealth Tax considers?
This is a crucial issue, but not a straightforward one. And it is something you should really know; because it is not the same paying 2.5% of €500,000 than 2.5% of one million.
Therefore, the value of the assets you will need to apply the wealth tax percentage to will be the highest of:
- The purchasing price you agreed on with the seller (the one in the contract)
- The cadastral value, which is set by the government
- The value that the Spanish Tax Office recognizes as valid
Nevertheless, there are some deductions to be made here. You can deduct the value of the loans and mortgage debts from the net value of the assets. But that is something you will be able to do as long as those loans have not been used to buy or to invest in any kind of asset that is exempt from the wealth tax.
This also applies to those loans used to buy a property which value is under the main home exemption (under €300,000).
How is it calculated?
It is really simple. You just need to take the net value of your assets (worldwide assets if you are a resident in Spain), which means that you have to substract the applicable loans and just consider the amount above the personal allowance.
Then you apply the exact percentage according to the region in which you are living in, and you have the calculation done.
How to reduce the Wealth Tax percentage you need to pay
This is something that will really interest you. How to lower the percentage you have to pay regarding this tax (or even eliminate it)? There are two options here:
- There are some assets, as we have mentioned, that are exempt from the wealth tax. They are really specific and are just a few, but you can take that into consideration before embarking on a new investment.
- There is another option which is really effective but a bit complex to execute. And that is restructuring your investments. How does that exactly work? There are certain types of assets that qualify for a term underneath the wealth tax legislation in Spain. And that means that the total wealth tax cannot exceed 60% of your general and savings tax basis. Knowing that you can restructure your investments so you lower or eradicate the need to pay the tax applied on wealth.
When do you have to pay the estate tax?
This tax must be presented to the Tax Office by submitting form 714. The advantage of this tax is that it can be done online.
Like personal income tax, this tax must be filed between April, May and June. And, usually, it is due until the last day of the previous year. That is, on December 31st. So you must include the value of the assets on that date in your return.
Frequently asked questions about wealth tax in Spain
Let’s now explore some of the questions that the vast majority of our clients ask our tax lawyers:
Is it possible to avoid wealth tax in Spain?
Yes, it is possible to avoid wealth tax in Spain (or at least to reduce it), and there are several options to do it:
- Check the tax regulations of your region, as some Spanish Autonomous Communities have even completely eliminated this tax (like Madrid, which exempts wealth tax entirely)
- Benefit from double taxation agreements that help you eliminate this tax obligation. This depends on your country and the agreements reached with Spain
- Benefit from tax deductions and exemptions, for example the ones applying to business assets and artwork
- Verify if you are a tax resident or not, as your tax obligations in Spain will differ. In case you are a non-resident, you will just pay wealth tax for your assets in Spain
- In case you are a tax resident but came thanks to a job offer, consider applying for the Beckham Law, which will reduce your tax payments
How do wealth tax and property tax differ?
Property tax and wealth tax are 2 separate taxes differing on what they tax and the rate at which they do it.
While wealth tax is an annual tax on an individual’s total net assets, it covers worldwide assets for residents and only Spanish assets for non-residents. The tax is progressive, with rates from 0.2% to 3.5% depending on the region
Property tax (IBI), on the other hand, is a local municipal tax on real estate ownership, calculated individually for each property based on its cadastral value. Rates for property tax vary by municipality, generally from 0.4% to 1.1%, and apply regardless of the owner’s overall wealth.
Unlike wealth tax, property tax applies only to real estate and is based on local rates rather than an individual’s total assets.
Which countries charge Wealth Tax?
Apart from Spain, this tax must also be declared in Switzerland, Norway, or Liechtenstein. In Norway, this tax is only declared from 1.5 million crowns, equivalent to €150,000, and the percentage is 0.85%.
On the other hand, there are countries that have eliminated the tax on wealth, such as Sweden, Luxembourg, Denmark, Germany, and Austria, or more recently France.
Spain wealth tax calculator
Taxes can be a really complex issue, especially when you are from a different country in which taxation works completely different. That is why planning is essential.
But we are here to help you out. We will be your online wealth tax calculators. You just need to send us an email including all the relevant information, and we will send you the exact rates you need to pay and how to optimize your wealth tax payments.
Relying on specialized tax lawyers in Spain that can help you out with your taxes is crucial. Our team, which is specialized in expat taxes is ready to help you out.
Book a consultation with one of our lawyers and solve all your doubts:
