With Spain being one of the top destinations for expats and the wealthy, have you considered the wealth tax implications that are required and, how sufficient wealth tax advice can help?
Under the current tax rules, you are liable for wealth tax in Spain on worldwide assets if you are resident for 183 days or more. This still applies even if you have not registered as a resident. Fines can be issued should you not declare all your assets.
Like most expats, the thought of having around 300 days a year of sunshine, great food and very good work life balance, expats still fail to take appropriate financial advice before and after moving.
Let’s take a look at the different tax rates in Spain with a focus on the Wealth tax and its regions, the cost and allowance.
Spanish Income Tax
As with many expats who already reside in Spain, there is a requirement to complete a Modelo 720. This form must be completed by the individual and returned to the local authorities. Spain’s current tax year runs from January 1st to the 31st December.
All assets worldwide must be declared on the Modelo 720, this will include pensions, savings, investments and property just to name a few. Spain signed a double taxation agreement with the UK in 2006, therefore assets that are taxed in the UK, will not be taxed in Spain.
Income Tax Rates for the year 2020
From (Euros) To (Euros) State tax % Regional tax % Total tax %
· 0 12,450 9.50 9.50 19.00
· 12,450 20,200 12.00 12.00 24.00
· 20,200 35.200 15.00 15.00 30.00
· 35,200 60,000 18.50 18.50 37.00
· 60,000 + 22.50 22.50 45
Spanish Capital Gains Tax
Spanish capital gains tax rules are not straight forward. Typically, Spanish tax residents are required to pay capital gains tax on the disposal of any worldwide assets. However, non-residents are required to pay Spanish capital gains tax on gains made by the sale of any Spanish property.
With specific regards to the sale of property, there are many deductions and calculations which are required to understand when calculating the final gain for tax purposes.
You should always seek qualified advice from a tax adviser who has full knowledge of the Spanish tax system before submitting any tax return in Spain to avoid penalties or fines.
As of 2020 the capital gains tax in Spain are as follows:
· First 6,000 Euros: 19%
· 6,000 - 50,000 Euros: 21%
· 50,000 + Euros: 23%
· Non-residents: 19%
Wealth tax in Spain
Since 2009, the Spanish government has introduced, removed and reintroduced the wealth tax which is a tax designed specifically for people who hold significant worldwide wealth, but are resident in Spain.
The tax amount is calculated against the declared worldwide assets held after a tax-free allowance of €700,000 is applied whether resident or non-resident in Spain.
You are also allowed a further €300,000 in property allowance, if a married couple, each is allowed the allowance of €300,000 for the property. Individual Modelo 720 forms will have to be submitted however, this could mean a possible €2,000,000 allowance.
Each of Spain’s geographical areas have different variations to the tax rules on wealth tax. If we look at southern Spain for instance, wealth tax can be applied up to 29.75%.
State rates and allowances
The state progressive wealth tax rates start at 0.2% on assets up to €167,129 and rise up to 2.5% on assets over €10,695,996. The Autonomous Regions can adjust these rates, so you need to establish what the rates are in your area.
The state allowances apply but progressive rates start at 0.24% on assets up to €167,129 and rise up to 3.03% on assets over €10,695,996.
The state allowances apply but progressive rates start at 0.28% on assets up to €170,472 and rise up to 3.45% on assets over €10,909,915. This is slightly higher than the most other Spanish regions.
The individual allowance is reduced from €700,000 to €500,000. Progressive rates start at 0.21% on assets up to €167,129 and rise up to 2.75% on assets over €10,695,996.
The individual allowance is reduced from €700,000 to €600,000. Progressive rates start at 0.25% on assets up to €167,129 and rise up to 3.12% on assets over €10,695,996.
As Madrid currently provides a 100% tax-free relief, its residents do not have to pay any wealth tax, regardless of their total net worth, although they may need to submit a wealth tax return only for information purposes. It is the only region to do this.
The state allowances apply but the progressive rates are slightly higher, ranging from 0.24% to 3%.
There are certain assets that are classed as allowable depreciation. This ranges from buildings and other construction, tools, motor vehicles, fixtures and fittings, machinery and computers.
These assets must be held in Spain and carry a flat line rate that can be applied to reduce the tax. Wealth tax cannot be reduced on items that do not produce an income.
Wealth tax limitations
Spain has a rule that the total income tax and wealth tax that a taxpayer must pay must not exceed 60% of the taxable income. The only limitation is that the wealth tax to be paid may not be less than the 20% of the wealth tax actually due. This carries a great value for those who are high rate tax payers in Spain.
For further information, advice, implications and suitable products that can beneficial to yourself, contact Expat Financial Advice Online. Our advisors will be happy to discuss your needs without Obligation.