Many foreigners are unsure about whether or not they have to pay income tax or property tax in Spain, especially if they’re classified as a non-resident for tax purposes. It may surprise you to know that there is another controversial tax collected on individual wealth in Spain.
Most countries do not have a Wealth Tax, and in fact, some areas of Spain have chosen not to implement it. However, the Spanish Wealth Tax is in force across most regions and can have a big impact on the finances and assets of wealthy residents and non-residents alike.
This blog explains what you need to know about the Wealth Tax in Spain as a non-tax resident.
What is the Spanish Wealth Tax?
Impuesto sobre el Patrimonio (IP), otherwise known as Spanish Wealth Tax, is an annual tax that is charged on individual wealth exceeding 700,000€. It is separate from income tax (Rendimientos) and municipal property tax Impuesto sobre Bienes Inmuebles (IBI).
The Wealth Tax applies to the net total of your assets on 31st December of that tax year (since the Spanish tax year runs alongside the calendar year). Spanish Wealth Tax can be charged on a total value calculated by including assets such as:
- ⦿ Real estate
- ⦿ Cash and bank deposits
- ⦿ Investments and shares
- ⦿ Vehicles (e.g. cars, boats)
- ⦿ Art objects and antiques
- ⦿ Jewellery and luxury garments
- ⦿ Life insurance and annuities
Items such as standard household furniture are excluded. There is also an allowance for deducting mortgages, loans, and other charges, including debts and financial obligations, that might diminish the overall value of one or more assets.
Who has to pay Wealth Tax in Spain?
If you don’t have assets totalling 700,000€ to your name, then the Spanish Wealth Tax won’t apply to you. However, if you do, then the municipality which is home to the majority of your assets is likely to charge Wealth Tax on them.
Unfortunately, this tax doesn’t only apply to Spanish residents. While a Spanish tax resident lives in Spain at least 183 days out of each year, even a non-tax resident in Spain spending less time than this in the country could be liable for Spanish Wealth Tax.
For Spanish residents, the tax will apply to their total worldwide assets, so the Spanish tax authorities will take your global net wealth into account. For Spanish non-tax residents, only their assets held within Spain will be valued for their Wealth Tax bill.
The Spanish Wealth Tax rules not only vary according to your residency status, but also depend on the particular region in Spain. Several autonomous regions are allowed to set their own tax rates, allowances, and deductions, but these may only apply to actual residents unless specified otherwise.
How much is Spanish Wealth Tax?
To start with, liable assets may have different rules for calculating their individual value, which you’ll need to do carefully to determine your total net wealth. For example, properties may be valued depending on which is the highest – the purchase price, cadastral value, or amount set by the municipal administration – while bank accounts may be valued based on the highest balance or an average.
Once you have your total, you’ll then apply deductions, including any allowances at either the national or autonomous region’s rate. Finally, when you have your total taxable amount, the Wealth Tax can be applied at the appropriate rate. It’s a progressive tax, meaning that the higher your wealth, the higher the tax percentage applied.
To complicate matters further, autonomous regions can set their own Wealth Tax rates, so how much you’ll have to pay will again depend on the location of your assets in Spain. The national rate starts at 0.2% and goes up to 3.5% for the top bracket of over €10 million.
Some regions set the lowest percentage higher and the highest percentage lower – for example, the Wealth Tax ranges from 0.24%–3% in Murcia, 0.21%–2.75% in Catalonia, and 0.28%–3.45% in the Balearic Islands. Meanwhile, Madrid decided to reduce both rates to 0%, and Andalusia followed suit by deciding to charge 0% Wealth Tax from 2022.
Are there exemptions to Wealth Tax in Spain?
When identifying and valuing your assets for your Wealth Tax declaration, some assets may be exempt, meaning you don’t have to include their value in your total net wealth calculation. Assets that are exempt from the Spanish Wealth Tax include (but are not limited to):
- ⦿ Household contents (excluding luxury items and antiques, etc)
- ⦿ Business assets deriving from professional activity that’s your main source of income
- ⦿ Small business or family company holdings
- ⦿ Economic rights (e.g. intellectual property, pensions)
- ⦿ Shares in an active trading company (if you own 5% of the capital or receive a managerial salary that’s at least 50% of your total earnings)
After you’ve added up the values of your non-exempt assets and applied deductions, you can also deduct the tax-free allowance. The national allowance is 700,000€, but some autonomous regions may set this lower or higher – for example, the allowance is only 500,000€ in Catalonia.
Further exemptions are available for Spanish residents, who are allowed to exempt an additional 300,000€ from the value of their main residence. If you’re a non-tax resident in Spain, any property you own will not be your main residence, so you won’t benefit from this. Similarly, married couples can combine their individual allowances, which could total up to 2,000,000€ for a married couple with a shared main residence in Spain.
There is also a cap on Wealth Tax which states that this tax combined with income tax cannot total more than 60% of your overall taxable income. If it does, then the Wealth Tax will be reduced until the combined total no longer exceeds this scale.
There’s also double taxation to consider, though an exemption for this is unlikely to apply, as most countries with double taxation treaties do not have their own Wealth Tax. However, if both countries do operate this type of tax, you may only have to pay in your primary country of residence.
What is the ‘Solidarity’ Wealth Tax?
In September 2022, the Spanish government announced a temporary tax that will be applied for 2023 in addition to the standard Wealth Tax. This is known as the ‘Solidarity’ Wealth Tax, and will apply to individuals with net assets worth €3 million or more at the following rates:
- ⦿ 1.7% for assets worth 3,000,000€–5,000,000€
- ⦿ 2.1% for assets worth 5,000,000€–10,000,000€
- ⦿ 3.5% for assets worth 10,000,000€ and above
To prevent double taxation, anyone who is already paying regional Wealth Tax can deduct this amount from their ‘Solidarity’ Tax bill. However, if your assets are in Madrid or Andalusia, and you haven’t paid Wealth Tax on them, you may face the full national ‘Solidarity’ Tax.
Again, this only applies to net wealth over 3,000,000€ – which includes worldwide assets for Spanish residents, but only assets within Spain for non-tax residents who are not EU/EEA citizens.
The government will review the Solidarity Wealth Tax at the end of the 2023 tax year to decide whether it should continue.
When is Spanish Wealth Tax due?
If the value of your taxable assets is 2,000,000€, then you must file a Wealth Tax return, even if you won’t owe any tax. For example, if you are in a married couple combining tax-free allowances, or in a 0% area such as Andalusia, you’ll still have to file the annual form.
To do this, individuals must complete and submit Form 714 before the end of the year (31st December). You’ll then receive your Wealth Tax bill and have to pay the amount applied between May and June the following year, similar to filing for income tax in Spain.
Even married couples have to complete and submit the forms separately, with assets and reliefs being attributed in half to each person. It is not possible to file a joint Wealth Tax return.
Please note that Spanish tax rates, their scope, and allowances may change. If you need professional legal advice on non-resident tax Spain, including Spanish Wealth Tax for non-tax residents, please contact Manzanares Lawyers to benefit from our expert guidance.