Wealth Tax in Spain

The UK tends to rely on income and inheritance taxes to generate revenue, but countries such as Spain and France, also apply wealth tax (Impuesto sobre el patrimonio). This is an asset tax and can be on cash, real estate, pension funds, shares, investment bonds, ISAs, and even cars. Portugal also has a wealth tax but this relates solely to immoveable property.

Spain eliminated wealth tax in 2008 but then “temporarily” reintroduced it in 2011 and it has been here ever since.

Each autonomous region sets their own allowances and rates after initial direction by central government. The Spanish State’s allowance is €700,000 plus up to €300,000 for one’s main residence. This is per taxpayer. It is important to note here that a property only becomes a main residence after 3 years of continuous habitation. There are a number of exceptions to this rule.

The State’s rates of wealth tax are as follows:

Wealth tax in Valencia has changed over the years. In 2019, it was announced that the tax-free allowance was being reduced to €600,000. With effect from 2021, the allowance is being reduced further to €500,000. This means that more and more people will become subject to wealth tax.

In addition to the reduction in allowances for 2021, Valencia has higher wealth tax rates than the State’s own rate, as follows:

Example:
If a couple have assets totalling €2.5 million, including a main residence worth €600,000, the individual annual wealth tax bill based on the State allowance and rates could be around €600. Using the Valencia allowance and rates, the tax bill could be almost €1,800. To clarify, this is per person and payable each year.

Depending on one’s income, and if one is a resident in Spain, the amount due can be reduced. The wealth tax due cannot exceed 60% of one’s taxable base (e.g., annual pension income, savings, etc.) when adding the wealth tax to personal income tax liabilities with a minimum payment of 20% of the wealth tax due. It is important to make certain that all of one’s assets are eligible for this rule.

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