The Spanish Government has recently approved a new tax law that impacts residents and non-residents affected by the Wealth Tax in Spain (also known as “Impuesto de Patrimonio”).
The change focuses on the Solidarity Tax for Great Fortunes (“ ISGF ”), with an adjustment affecting those liable to pay Wealth Tax and, where appropriate, for the ISGF.
The Spanish press has called it “Spain’s millionaire tax”, – a tax on “great fortunes”.
What is the Spanish Wealth Tax?
The Spanish Wealth Tax is an annual tax payable by residents and non-residents on your assets’ net value as of 31 December.
It does come with allowances, although it can considerably impact wealthier individuals.
There are exceptions depending on whether or not you are a resident of Spain and which region you are in.
The regional government announced the end of wealth tax in Andalucia as of the 2023 tax year. The only other region where paying Wealth Tax is exempt is Madrid.
However, these changes will affect taxpayers in Andalucia and Madrid.
Following the new law, taxpayers will not be obligated to pay twice, i.e., wealth and solidarity taxes. Any amount paid under the regular tax law, calculated under regional rules, will offset and be deducted from the solidarity tax liability.
This means that tax solidarity will become fully payable in Andalucia and Madrid.
Who will be affected by the changes?
The tax targets those with fortunes of €3 million or more (on worldwide assets for Spanish residents).
It’s a tax on assets and holdings and not income.
Currently, this new legislation is a temporary trial for 2022 and 2023. At the end of the trial period, the legislator will evaluate and review its continuation.
Why has this new tax been introduced?
As inflation continues to affect households, businesses, and the economy, the Spanish Government is looking to increase its tax revenue by €3.14 billion this year.
In addition, the aim is to bring more regularity to wealth taxation between the different autonomous communities.
What are the government-based tax rates?
Tax rates are not flat but instead based on the level of wealth.
If your net worth is:
- from €3,000,000 to €5,000,000, the tax rate will be 1,7%
- from €5,000,000 to €10,000,000, the tax rate will be 2,1%
- from €10,000,000, the tax rate will be 3,5%
All rates, exemptions, and rules of this new tax are based on the Wealth Tax Law.
How will the change in the law affect Spanish residents?
No taxpayer will pay twice for the same assets.
Only those with a net wealth of over €3 million (on worldwide assets for Spanish residents) are liable. And it will only be included in the tax calculation in the regions where wealth tax has been abolished or reduced.
Spanish tax residents benefit from ample tax allowances, e.g. an entitlement of €500,000 deduction per person in the C. Valenciana (700.000 € in Murcia) and €300,000 per owner on the main home.
What are the implications for wealthy non-resident taxpayers in Spain?
Non-residents of third countries (outside the European Union or the European Economic Area) are liable for regional wealth tax regulations.
The rules will apply to assets with the most significant value in whichever autonomous region they are located.
Otherwise, non-residents are entitled to a €700,000 reduction per person.
Buying a luxury property in Spain
If you are considering investing in luxury property in Spain, it’s essential to keep this unexpected cost in mind and not get caught out by wealth tax.
Don’t let Spanish tax laws confuse you.
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Maria Luisa Castro
