Are you impacted by Spain’s Wealth Tax?
06 Feb 2024
Spain's wealth tax, known as "Impuesto sobre el Patrimonio," can significantly impact expats living in the country, especially in light of recent tax changes. Here's a summary of key points relevant to expats who may have been affected by the wealth tax:
Wealth Tax System:
Spain's wealth tax is progressive, and the amount you pay depends on several factors including where you live in Spain, your net assets, and what deductions you can claim. Each of Spain's autonomous regions has its own rules and exemptions for the wealth tax. For example, Madrid and Andalusia offer 100% deductions, effectively exempting residents from the wealth tax, whereas other regions have lower exempt minimums and varying tax rates.
Expats in Spain need to be aware of three important forms: Modelo 100 for declaring worldwide annual income received, Modelo 720 for declaring assets outside of Spain and Modelo 714 for declaring Spanish assets. The Modelo 100 is required for all residents who have received income over 22.000 € from one payer or over 14.000 € if source of income is from more than one payer, form 720 is required if you have assets exceeding €50,000 globally, while Modelo 714 is for those with Spanish assets worth more than €2,000,000 or anyone liable for a Spanish Wealth Tax payment.
Solidarity Wealth Tax:
Recently, the Spanish government introduced a "Solidarity Wealth Tax" (ISGF), which is in addition to the existing wealth tax and is designed to supplement it. This tax affects individuals with a net worth exceeding €3 million and is applied nationwide, regardless of the regional wealth tax exemptions. The rates for this tax are progressive, starting at 1.7% for net worth between €3 million and €5 million, and going up to 3.5% for net worth above €10 million. In a recent change to the measures, those classified as tax residents in Spain saw a reduction of the base tax rate of 700,000 euros.
Parity between Tax Residents and Non-Residents:
A major point of contention in the Solidarity Tax on Large Fortunes was its unequal treatment of non-tax resident taxpayers. Unlike residents, non-residents were excluded from the 700,000 euros reduction in the tax base, leading to perceived unfairness in the tax's application.
Spain's recent legislative update has addressed a key issue in the Solidarity Tax on Large Fortunes, particularly affecting non-tax resident taxpayers. Previously, these taxpayers couldn't benefit from the 700,000 euros tax base reduction, unlike tax residents. The Parliament's recent approval now eliminates this disparity, allowing non-residents to retrospectively adjust their 2022 tax returns to claim this reduction and any associated refunds. This change aligns the treatment of non-residents with residents under the scheme.
Deductions and Exemptions:
There are deductions and exemptions that can help reduce the taxable amount. These can include investments, household goods, artwork, family-run businesses, property (up to €300,000), and other items. However, it is advisable for expats to seek financial advice for optimal structuring of their finances to minimize tax liability.
Temporary Nature of the Solidarity Tax:
The Solidarity Tax was introduced as a temporary measure for 2023 and 2024 to address the current economic situation. However, it's uncertain whether this tax will become permanent, as has happened with other temporary taxes in the past.
If you would like detailed advice on any of the issues covered here, our expert team of lawyers and accountants are here to assist.
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