Hi Gericomm99
You were right about the wealth tax being eliminated. Below are some details for you all to read. Note the table shown is from the 2005 rates.
Spanish Wealth Tax (PATRIMONIO) for Property Owners in Spain
The Spanish wealth tax, known as patrimonio, might catch you buy surprise.
Note: This tax has been eliminated as from 01/01/2008. However, it still needs to be declared for 2007.
Most Britons moving to Spain or buying property there understand that they will have to pay Spanish taxes like income tax, capital gains tax and inheritance tax. Not everyone, however, is aware that Spain imposes an extra tax, one with no equivalent in the UK and which is payable on top of the other Spanish taxes: The Wealth Tax in Spain.
Spanish Wealth Tax is payable by both residents and non-residents (if they own property in Spain), although the rules are different. Residents pay wealth tax on their worldwide assets but have quite generous tax-free allowances, whereas non-residents are only liable on net assets within Spain but miss out on the allowances. In both cases, the tax is calculated annually on assets held at 31st December each year.
Spanish Wealth tax rates
The rates for 2005 returns (applicable to the net tax base of wealth owned on 31st December 2005) are as follows:
| From € |
To € |
Tax rate % |
Total payable at
top of band € |
| Nil |
167,129 |
0.2 |
334 |
| 167,129 |
334,253 |
0.3 |
836 |
| 334,253 |
668,500 |
0.5 |
2,507 |
| 668,500 |
1,337,000 |
0.9 |
8,523 |
| 1,337,000 |
2,673,999 |
1.3 |
25,904 |
| 2,673,999 |
5,347,998 |
1.7 |
71,362 |
| 5,347,998 |
10,695,996 |
2.1 |
183,670 |
| Over |
10,695,996 |
2.5 |
- |
Wealth tax in Spain deductions
Residents are entitled to the following deductions per person:
- Individual deduction: €108,182.18
- Own home deduction: €150,253.03
A married couple would each be entitled to the individual deduction as well as the deduction on their share of the main home owned in joint names.
If you own property or other assets in Spain but are not resident there, you are not entitled to any deductions and have to pay wealth tax on these assets at the rates above. It may only amount to a few hundred Euros, depending on the value of the property, but you will always have some liability as a non-resident owner of Spanish property.
Wealth tax in Spain exempt assets
Some assets are exempt from wealth tax. These include:
- Household contents (but excluding jewels, fur coats, vehicles, boats, art, and antiques)
- Owner managed small businesses
- Family companies meeting certain conditions (shares in property investment companies are not exempt unless the company carries on a commercial activity – see below)
- Pension rights
- Intellectual property rights in the author’s ownership
- Business assets. For the assets to qualify as business assets, the activity must be the taxpayer’s main source of income (i.e. the income from the business must constitute at least 50% of his taxable income) and the activity must be carried out by the taxpayer on his own account and on a habitual basis.
Where a rental/property development business is carried out, the following conditions must be fulfilled for the activity to qualify as a commercial activity. Provided these conditions are fulfilled, the properties used in a rental/development business can be exempt from wealth tax in Spain.
1.There must be premises used exclusively for the management of the business activity. Part of a building can qualify provided the part used is separate from any other activity and is used exclusively for the management of the property business. A shared office will not qualify.
2.There must be at least one member of staff employed on a full-time contract. This could be your spouse but he or she would need to be registered as an employee for social security in Spain and contributions would be deducted from their salary each month.
Shareholdings are also exempt from wealth tax provided:
1.the company is a trading company
2.you own at least 5% of the share capital (or at least 20% including shareholdings belonging to a spouse or other family members)
3.you carry out managerial duties for the company
4.you derive a salary for such activities which is at least 50% of your total net earnings
Spanish Property values and the wealth tax
When working out the value of all your eligible assets each year, you must value your property at whichever is highest of the following values:
a.the officially registered Valor Catastral (often known as the ‘Town Hall’ value)
b.the value taken into account for any other tax purposes
c.the price in the purchase agreement – the Escritura
Liabilities in general reduce taxable wealth, but not where it is a loan used to buy an asset that is specifically exempt or covered by exemptions. So where a mortgage is for the purchase of the main home (the value of which for wealth tax is covered by the main home exemption) no deduction is available for that mortgage.
For a non-resident, only Spanish liabilities would be taken into account and there is no exemption to consider. To obtain relief it would normally have to be a Spanish mortgage attached to a Spanish property.
Spanish wealth tax - Bank balances
Bank balances are valued at the higher of the closing balance on 31st December or the average balance during the 4th quarter.
‘Personal Portfolio Bonds’ and reducing wealth tax
Life assurance contracts (such as a ‘Personal Portfolio Bond’) are taxed very favourably in Spain, helping to legally reduce various Spanish taxes including wealth tax.
The Spanish tax regulations state that cumulative wealth and income taxes cannot exceed 60% of a resident’s total taxable income (there is no limit for non-residents), subject to a minimum of 20% of the wealth tax calculation. This is a major way that a wealthy person can avoid wealth tax as a resident of Spain.
If you are able to tie up your capital for five years, you can also set up your Personal Portfolio Bond so that the life assurance has no immediate ‘value’ at all and can therefore be excluded from your wealth tax return. All you need to do is agree with the life assurance company that the contract cannot be redeemed for five years and one day. This will mean that no withdrawals are possible for the first 5 years, so you will first need to ensure that this is the best option for you.
Joint income tax returns for wealth tax in Spain
If you are married and have opted to file a joint income tax return, then to calculate your wealth tax limitation you need to add together the total income tax due and each individual wealth tax calculation. If the 60% limit is exceeded, the reduction in wealth tax is pro-rated between your spouse and yourself in proportion to the amount of each of your taxable wealth.
Returns and payments
Where there is a liability, the wealth tax form must be completed after the end of each year and the tax is payable between May and July. Husband and wife need to make separate returns reflecting their shares of any joint assets and liabilities in addition to any personal items.
Whether you are buying property in Spain as a holiday home or investment, or if you are planning to move there permanently, it is important to make sure you are informed of all the tax issues in advance. Many British people are caught out by rules they were not aware of and this can result in more tax being paid than necessary. Professional advice will prove invaluable, and in order to make sure you are fully informed and kept up to date with any changes, find an adviser who specialises in both Spanish and UK taxation.
Westport