As foreign resident expat in Spain, or if you live in the US or another country but have Spanish assets, you may be wondering whether you are subject to the Spanish wealth tax. The answer in both scenarios is yes, depending on the total value or your assets. There are allowances and variations based on the region of Spain where you reside or own assets. In this article, we explain and demystify Spain’s wealth tax, bringing clarity to your obligations, as well as outline the allowances available to you.
- What is Spanish wealth tax?
- Who has to pay Spanish wealth tax?
- What assets are subject to Spanish wealth tax?
- Reducing Spanish wealth tax: the 60% limitation rule
- Example of wealth tax application
- Reducing Spanish wealth tax with a Spanish Compliant Investment Bond (SCIB)
- 2023 Changes to Spanish wealth tax
What is Spanish wealth tax?
Spain is one of just three European countries that have wealth tax. The Spanish wealth tax applies to individuals with assets surpassing a specified threshold and is calculated based on the total net value of an individual’s assets as of December 31st. Tax residents in Spain must file a Modelo 720 form completed online to provide details of their assets owned outside Spain with a value exceeding €50,000.
Who has to pay Spanish wealth tax?
The wealth tax in Spain applies to both residents and non-residents. However, the key difference lies in the scope of taxation, as residents are required to pay taxes on their global assets, whereas non-residents are only taxed on assets located within Spain.
For residents, there is a €500,000 deduction, plus €300,000 of the value of your home. Resident expats who have worldwide assets above these deduction thresholds therefore are subject to Spanish wealth tax at a rising rate of 0.2% to 3.5%, depending on the value of their assets.
The rates can also vary from region to region due to the autonomy granted to each community, allowing them to set their own tax rate as well as determine the tax-free allowances. Notably, Madrid and Andalucia currently have no wealth taxes.
Wealth Tax for Spanish residents features:
- Pay tax on worldwide assets.
- Are entitled to a €500,000 deduction per person in the Valencia (€700,000 in Murcia).
- Are entitled to a deduction of €300,000 per owner on your main home.
- Are required to submit the wealth tax declaration if:
- After applying these allowances, the net result is positive.
- The total gross value of your assets exceeds €2 million euros.
Wealth Tax for Non-Residents features:
- Pay on Spanish assets only.
- A €700,000 deduction per person.
- Are required to submit a wealth tax declaration if:
- After applying the deduction, the net result is positive.
- The total gross value of goods in Spain exceeds €2 million euros.
If you’re a non-resident with assets in Spain subject to wealth tax, it’s mandatory to designate a representative to fulfill your tax obligations. This is necessary when operating through a permanent establishment or if tax authorities request it based on your asset amount and characteristics
What assets are subject to Spanish wealth tax?
Main assets subject to Wealth Tax in Spain:
- Real estate
- Bank deposits and investments
- Assets and rights related to professional or business activities
- Luxury assets like jewelry, fur coats, boats, fast cars, and other vehicles 4
- Art objects and antiques
- Life insurance, life annuities, and temporary annuities
- Royal rights, administrative concessions, and intellectual property rights
Spanish Wealth Tax exemptions include:
- Household contents (excluding those mentioned above)
- Works of art and antiques
- Financial assets in some account types, such as some pensions
- Business assets derived from a professional activity, constituting the main source of income, and carried out on your own account and habitually
- Intellectual property rights for your own work
- Shares in entities, listed or unlisted, in which you either have ownership of at least 5% of the share capital (or at least 20%, including shareholdings of a spouse or other family members), or in which you carry out managerial duties in the company, with a salary constituting at least 50% of total net earnings, and in which the principal activity is not the management of movable or immovable property.
Reducing Spanish wealth tax: the 60% limitation rule
Spanish law dictates that an individual’s wealth and personal tax liability cannot be more than 60% of their taxable income base. This means that it’s possible to restructure assets to limit wealth tax liability.
Though complex, it can be a potent strategy to reduce Wealth Tax. To find out more and the 60% rule and whether you could benefit from it, seek advice from a qualified professional.
Example of wealth tax application
Mr. and Mrs. Smith have retired in Andalucia. Their property is valued at €800,000, and they jointly hold various investments worth €4,200,000, making each eligible for a wealth tax-free allowance of €800 each. This leaves €3.4 million potentially liable to Wealth Tax, or €1.7 million each.
Assuming a wealth tax rate of 2%, their wealth tax liability would be €34,000 (2% of €1.7 million).
Assuming that their Spanish Income Tax liability is €36,480, their total tax bill would be €70,480
The 60% rule states that Spanish wealth tax and personal income tax liability cannot exceed 60% of a person’s taxable income base. In this case, the total taxable base is €132,000 (pension income of €30,000 plus Investment Income of €102,000).
60% of €132,000 is €79,200. Since this is higher than the total liability of €70,480, no further reduction applies, and the total payable will be as calculated above.
Reducing wealth tax with a Spanish Compliant Investment Bond (SCIB)
A Spanish Compliant Investment Bond (SCIB) is a type of investment account that allows investors to defer capital gains tax to enhance the compounding value of the investments. SCIBs can also be exempt from Spanish wealth tax. Seek advice from an experienced professional to ascertain whether investing in a SCIB would be beneficial in your situation.
2023 Changes to Spanish Wealth Tax
In 2023, the Spanish government introduced a second wealth tax for high net worth individuals called the ‘Solidarity Wealth Tax’ that imposes higher taxes on those with total asset values over €3 million (on worldwide assets for Spanish residents).
Strategic planning is essential when you live abroad or hold international assets, including local expertise. It can, requiring a thoughtful restructuring of your financial arrangements to ensure tax optimization. While completely avoiding wealth tax in Spain may not be feasible, there are existing allowances that significantly mitigate its impact, offering a more manageable outcome.
If you have any questions about financial planning or investing as an American living in the EU, get in touch.
This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.