Spanish Wealth Tax and how it affects British expats in Spain

A life in Spain is a dream for many. When it comes to taxes, however, moving yourself, your family and your assets to another country can sometimes come with unwelcome surprises. Although Spanish wealth tax was supposedly eliminated back in 2008, it returned in 2011 following the financial crisis in Spain and is currently still in place today.

In this guide, we’ll give you an overview of how to figure out if Spanish wealth tax applies to you, and the advice to seek if it does.

What are the Spanish Wealth Tax rates and what assets to they apply to?

Between different regions you’ll find that the rates vary, and you may find that the top rate can be higher in some places. Fundamentally, after your €300,000 primary residence allowance and above €700,000, tax rates range from 0.2% to 3.75% of your net assets.

These assets include:

• Real estate
• Business/professional activities
• Savings
• Insurance and investment policies
• Luxury items (things like yachts, art, cars or valuable jewellery)
• Ownership of royalties or intellectual property rights

Normal household items, pensions, businesses that you personally own or run and author’s rights are exempt, if they are to do with your main source of income.

This means that you have a tax-free allowance of €700,000 as well as a €300,000 allowance on the value of your main home. If the property is owned in joint names (by a couple) both named parties qualify for the €300,000 allowance. If you are a non-resident, you qualify for the same allowance of €700,000, but not against any Spanish property.

Will Spanish Wealth Tax affect you?

If you are a resident in Spain, wealth tax will apply to all your international assets after tax-free allowances. For non-residents, it will only affect your Spanish assets. Depending on which you are, your total tax payable will be calculated from the net value of your taxable assets at the end of each year.

There are three valuation rules that can apply to property specifically. This will be valued at whichever cost the highest. The first is the official ‘valor catastral’, then there is the value given from the tax office for other tax purposes, then there is whatever the property's price was in the purchase agreement.

What can you do about it?

Buying as a company

There are a few different options open to you for reducing, or even avoiding, a Spanish Wealth Tax bill.

You can choose to buy real estate in Spain through a company as opposed to as an individual. It’s important to do your research on a case by case basis, as even though companies don’t pay Wealth Tax, the partners and shareholders of that company are not always included in this exemption.

Setting up and running a company just for the purposes of this exemption may not end up being worth it, as there will be additional time and money costs involved. However, if you already have an operational company, then this could be a very sensible option to explore.

Control your income

If you can control your total income, you will be able to reduce your liability for wealth tax: as a Spanish resident, the accumulation of your wealth and income taxes can’t go above 60% of your general and savings taxable income base. It’s worth noting, this will not apply to any assets you have that don’t produce an income. This is also subject to paying a 20% minimum of the entire Spanish wealth tax calculation.

Multiple owners of the property

If you were to put the property in the name of several owners, the amount each of those owners are exempt from paying tax on would combine to create a substantial break. Additionally, and only if you sought proper legal advice, you could explore the option of creating an ‘usufruct’ lease, as this would lower the value of the property.

A loan and a mortgage

To reduce its taxable value, there is also the option of taking out a loan with a mortgage on your property. This works on two levels, as you can deduct a bank loan from your tax calculations, alongside actually lowering the value of the property with the loan. In some cases, this option can reduce your tax bill so much that that the savings you make cover the cost of the loan.

When to seek advice about Spanish Wealth Tax

Across the world we’ve seen a trend of eradicating wealth taxes completely, with only a few OECD countries today taxing net wealth, compared to a far greater amount even just a decade ago. While this is the case for many countries, Spain is showing no signs of abolishing the tax. You are only affected if the net value of your assets (both in and out of Spain) is over €1,000,000 – this can hit wealthy residents extremely hard.

With all of these options, it’s always good practice to seek qualified legal advice, with an expert who can analyse these situations on a case by case basis. It takes some careful planning, but it is often possible to legitimately minimise your liability for wealth tax, especially with regards to your investment capital.

If you are looking to relocate to Spain, or even just invest, and your total wealth is above the allowances, it is always best to take specialist advice on how this might affect you and what your options are to counteract it.