Any change in tax legislation affects many expats living in Spain.
On many occasions one of the main concerns people have when we discuss their tax situation with them is, are they making the correct declarations in Spain, should they become Spanish tax resident or not, and how can we help them make the right decision. The fact of the matter is, whether you have undergone the formal process or not, if you spend more than 183 days per year in Spain the authorities will consider you tax resident here.
Please take the time to read the following important information regarding the ‘temporary’ re-introduction of Wealth Tax.
This tax started in 1978 as a special measure to force many Spanish citizens who had been hiding their wealth, especially property, to bring these assets into the open.
Hacienda placed a very small tax on these assets, amounting to only two-tenths of one percent on assets up to €108,182. After that, the rate goes up as assets go up.
The big news for 2008 was that this was the last year that any property owner had to pay Spanish Wealth Tax. So property owners paid it in 2008 for the 2007 tax year, but this was the last time.
Non-resident property owners were among the biggest beneficiaries of the tax cut. This is because residents in Spain had exemptions on the value of their homes, but non-resident owners had to pay the tax from the first euro of valuation.
It has now been confirmed that Wealth tax is to be temporarily re-introduced in Andalucia with effect from 2011 tax year.
The money is needed to help close one of Europe’s largest budget deficits. Finance Minister Elena Salgado told a press conference:
“The economic crisis makes it necessary to reinstate this tax, which will allow us to tax the wealthiest so those who have more, contribute more to help us out of the crisis.” Wealth tax affects residents and non-residents differently. A resident is required to declare his world-wide assets while the non-resident declares only his property and assets in Spain. The personal exemption has significantly increased and will now be €700,000 per person (up from €108,182 in 2007). This exemption will now also apply to non-residents of Spain. Couples are assessed for wealth tax separately, and jointly held assets are treated as belonging 50% to each individual, so the threshold for a married couple can be up to €1.4 million.
Residents are entitled to two general allowances against wealth tax: €700,000 per person for all assets, except a principal residence (as detailed above) and €300,000 per person for a principal residence. Therefore, if you’re single and own your principal residence in Spain, you qualify for a wealth tax allowance of €1,000,000. If a property is registered in the names of both spouses (or a number of unrelated people), they should each make separate declarations and are each entitled to claim the exemption.
The value of property is whichever is the highest among the purchase price, its fiscal value (valor catastral) and its value as assessed by the authorities.
At Speed Financial Solutions we pride ourselves in offering tailored financial solutions. If you would like to discuss the above changes or any other area of your financial planning, please contact us.
Andrea Speed Principal 11 November 2011
Please note that the information set out above is based on our current understanding of tax legislation and practice in Spain. Whilst every care has been taken, we cannot take any responsibility for its interpretation or subsequent changes.