Lawyer – Tax Department
Jose is originally from Galicia but has been living in Barcelona for the past 20 years. He studied Law in the Pompeu Fabra University. After that, he specialised as International Tax Advisor, focusing on expats management. Languages: English, Spanish and Catalan.
There are many questions regarding Wealth Tax in Spain. Many argue it is an institution from the past. Since its decline in the 1990, twelve countries in Europe had wealth tax. Currently, there are only three: Norway, Spain, and Switzerland.
Wealth tax Exists in Spain. Unfortunately the topic is often overlooked do to doubts and misconceptions. A costly mistake. In order to best understand Wealth tax and its implications, Lexidy has identified the 6 most frequently asked questions you should know regarding Wealth Tax:
1. WHAT IS THE WEALTH TAX?
The Wealth Tax taxes the net worth of the taxpayers. This net worth is the result of adding the value of all of their assets and economic rights and then deducting the liabilities that reduce the value of such assets and the debts and personal obligations.
2. DO SPANISH NON-TAX RESIDENTS HAVE TO PAY IT? OR ONLY SPANISH TAX RESIDENTS?
Both taxpayers must pay it, but on a different basis:
Spanish Tax Resident: you will have to pay Wealth Tax on your worldwide wealth. Therefore, you will have to include the assets and rights you have all around the globe, and then deduct your world-wide liabilities and debts.
Spanish Non Tax Resident: you will only have to pay taxes on your Spanish wealth. When calculating the taxable base, you will only include your Spanish assets and rights.
3. WHAT ASSETS AND DEBTS ARE INCLUDED IN THE TAXABLE BASE? AND WHAT IS THEIR VALUE?
There are several goods and assets that have to be included, but we will point out the most important ones, and what is their taxable base, for the Wealth Tax calculation:
- I. Real Estate: Its value will be the highest among the cadastral value, assessed by the Administration for other taxes or the acquisition value. If the property is under construction are taken as reference the amounts paid. (More inf. on Spanish land tax value click here)
- II. Deposits in current bank accounts or savings accounts: Short or long term. Their value will be the balance on December 31st of the year or, in case it is higher, the last quarter’s average.
- III. Shares negotiated in organized markets: They must be included and will be valued at their average price. Other values representing the participation in equity capital of whichever type of entity will be valued at their underlying net book value.
- IV. Life Insurances and temporary or lifelong pensions: will be valued at their redemption value.
*Other goods such as jewelry, luxury furs, vehicles of over 125 cc, recreational or sportive vessels, airplanes, yachts and arts and antiques, must be included and must be valued at their market value at year’s end.
*Liabilities, such as the mortgage, will be considered deductible, and will reduce the taxable base. Personal debts will reduce it too, as long as they are properly justified.
4. DO YOU HAVE TO FILE IN THE WEALTH TAX RETURN?
You only file Wealth Tax Return if the net value of your taxable property is over the threshold. Each Autonomous Community has a different threshold:
- Catalonia:500.000 Euros,
- Madrid: 700.000 Euros
- Comunitat Valenciana: 600.000 Euros.
Additionally, there is an exemption of 300.000 Euros on your habitual residency. The amount over it, is subject to taxation.
For Example: If you are a Spanish Tax Resident, who resided in Catalonia, your habitual residency is valued at 350.000 Euros and the net value of your property is 550.000 Euros, you will not have to file in a Wealth Tax Return. This is because from such 550.000 Euros can be excluded the 300.000 Euros corresponding to your habitual residency.
*Not the 350.000 Euros, because, as pointed, the limit of exemption is 300.000 Euros. Therefore, the taxable base will be of 250.000 Euros and is below the threshold.
5. HOW MUCH DO YOU HAVE TO PAY ON WEALTH TAX?
The tax liability to be paid is the result of multiplying the net value of your property per the progressive tax rates, which go from 0,2% up to 2,5%. However, Autonomous Communities can approve different tax rates, that can go even higher.
Additionally, certain Autonomous Communities, such as Madrid, have approved a 100% bonification. This means that, although you would have to file in your Wealth Tax Return, you would not have to pay taxes on it.
6. WHEN DO YOU HAVE TO FILE IN THE WEALTH TAX RETURN?
The Wealth Tax Return has to be filed in through Form 714 (for more info on 720 form click here)on an annual basis.
HOW CAN WE HELP YOU?
We are international lawyers experts in the subjection to taxes in Spain. At Lexidy Law Boutique, our experts will be glad to assist you in the preparation of your Wealth Tax Return.