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.
Find out how we can help with our Tax Representation Service
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Maria Luisa Castro
Hello, we are us citizens looking to purchase a property in Girona as non- residents. We are worried about the rax implications since our global wealth exceeds 3 mil euros. We also need a real estate attorney since we have learned that in Spain liens on the house are not disclosed.
Dear Caroline:
I have just sent you to your email our terms and conditions for our service for property purchase.
Here below you can find a comprehensive overview in English of the fiscal responsibilities in Spain for both residents and non-residents, especially those with assets exceeding 3 million euros:
Wealth Tax (Impuesto sobre el Patrimonio):
Residents: Those considered fiscal residents in Spain are taxed on their worldwide assets. Spain has a progressive wealth tax that starts from 0.2% and can go up to 2.5% for the highest values, depending on the autonomous community.
Non-Residents: Non-residents are only taxed on assets located in Spain.
Income Tax:
Residents (Personal Income Tax – IRPF):
Residents are taxed on their worldwide income. Rates are progressive and can vary depending on the autonomous community.
Non-Residents (Non-Resident Income Tax – IRNR): Non-residents are taxed only on Spanish-sourced income. The rate is generally flat but can vary depending on the type of income and tax treaties.
Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones):
Both residents and non-residents can be liable for this tax. The rates and allowances vary significantly between autonomous communities. Some regions offer very favorable inheritance tax regimes, where the effective tax rate can be very low or even zero in some cases.
Reporting Obligations:
Form 720: Residents with assets or rights located outside of Spain valued at more than 50,000 euros in any of three categories (real estate, bank accounts, and other assets) have an obligation to report them annually.
Capital Gains Tax:
Both residents and non-residents are taxed on gains from the sale of assets. While residents are taxed on worldwide gains, non-residents are taxed only on gains from Spanish assets.
Real Estate:
Non-residents owning real estate in Spain must pay a yearly tax based on the property’s value, regardless of any rental income.
Other Taxes: Depending on the nature and location of assets, other taxes like municipal taxes or those related to specific financial products or transactions may apply.
Special Considerations for High Net Worth Individuals (Assets over 3 million euros):
Wealth Tax Limitations: As net worth increases, so does the wealth tax liability. Once assets exceed certain thresholds (varying by region), the tax rate and amount can increase significantly. Some communities offer reductions or exemptions, but they can be limited for very high net worth individuals.
Special Regimes: Spain offers tax regimes targeting high net worth individuals and investors, such as the Beckham Law. These regimes provide significant tax advantages but have specific conditions and requirements.
Tax Planning Opportunities: There are strategies for high net worth individuals to mitigate potential tax liabilities, including the use of Spanish holding companies, restructuring asset ownership, or considering residency changes.
Automatic Exchange of Information: Spain participates in the OECD’s Common Reporting Standard (CRS) initiative, leading to automatic financial information exchanges between Spain and other countries. This impacts privacy and may have tax implications.
Given the complexities associated with substantial wealth and Spain’s potential tax liabilities, it’s even more crucial for high net worth individuals to seek expert advice. The Spanish tax system’s complexity and regional variations make it essential to consult with a tax advisor or legal professional, especially when handling significant assets.
I have asked Ana Landa, Our Tax Advisor, to contact you for a detailed assistance.