This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, it is subject to change and we are not responsible for any errors or omissions.
In the UK, taxes are primarily imposed on income earned as it comes in. For instance, capital gains tax (CGT) is levied on chargeable gains from investment returns. Income tax is levied on a worker’s salary. The nearest thing we have to a “wealth tax” in the UK is perhaps inheritance tax (IHT), which is typically levied at 40% on the value of an individual’s estate once it exceeds £325,000. However, what are the rules in Spain?
As an expat (or someone interested in moving to Spain), it is important to be aware of the wealth tax and how the rules may apply to you. Below, our Alicante financial advisers at Scottsdale explain how the wealth tax impacts foreigners and offer ideas to navigate it wisely.
We hope these insights are helpful. If you want to discuss your financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
+34 966 460 407
What is the Spanish wealth tax?
The wealth tax in Spain is called the Impuesto Sobre el Patrimonio and is based on an individual’s net assets held as of 31 December each year. There is a tax-free “personal allowance” of €700,000, (although this is reduced in some communities for example in Valencia this is only €500,000). Anyone with net assets (i.e. your assets minus liabilities) above this amount will need to pay a 0.2% – 2.5% wealth tax, depending on their situation
More specifically, tax residents of Spain (i.e. British expats who have spent over 183 days in Spanish territory over a calendar year) will have their worldwide assets brought into consideration when determining their liability to the wealth tax. Non-residents, by contrast, are only judged on their net wealth on assets held in Spain – e.g. property owned in Murcia, Alicante or other local areas.
How does the wealth tax work?
It may be tempting for a British expat in Spain to assume that local authorities cannot know confidently about their overseas assets. Yet be aware that both the UK and Spain are signatories to the international “exchange of information” scheme under the Organisation of Economic Development (OECD). This means that the two countries regularly share tax information to mitigate tax avoidance. British expats, therefore, need to be careful to be proactive about keeping their cross-border financial affairs in good order.
For expats in Spain, where you live has a significant impact on your liability to the wealth tax. In 2023, for instance, the region of Andalusia abolished the tax to try and encourage higher-net-worth individuals (HNIs) to relocate there. Wealth tax is also not levied for people living in Madrid. However, bear in mind that the central government in Spain has recently introduced a “solidarity wealth tax” partly in response to Madrid and Andalusia’s tax laws. This applies to individuals with net assets exceeding €3m with a top rate of tax at 3.5%.
How do I navigate the Spanish wealth tax?
For those with net assets under €700,000, you likely do not need to worry too much (unless your net worth could exceed this threshold in the future – e.g. due to investment growth). Expats would do well, regardless, to be mindful of the types of assets which Spanish tax laws regard as applicable when determining an individual’s total “net assets.” These include Spanish real estate, registered cars, boats, planes, company shares, bank accounts and investments.
It can help to speak with a specialist expat financial adviser to establish whether any of your assets qualify as “exempt” under Spanish rules. For instance, certain household contents are not counted. The same applies to specific works of art and antiques. Expats with business assets should also consider professional advice. Certain shares (listed or unlisted) may be regarded as exempt if particular requirements are fulfilled.
As is often the case for British expats in Spain, your residency status matters. As mentioned, Spanish residents are subject to the wealth tax on their worldwide assets – including property in the UK. The wealth tax is applied annually which could add up to a significant erosion of an individual’s assets if they are not careful. For British nationals considering retiring to Spain, therefore, we recommend you speak to a financial adviser about how your UK home should feature in your long-term financial plan.
One idea might be to spend enough time outside of Spain each calendar year (e.g. over 183 days) to ensure you do not become a Spanish resident. This could keep your UK property “out of range” of the Spanish wealth tax but could be an expensive and cumbersome strategy over the long term. One advantage of becoming a Spanish resident is that you can receive a wealth tax exemption for your main residence. This stands at €300,000 for a property owned by one person or €600,000 for a property owned jointly.
If you are interested in discussing your own financial plan or inheritance tax strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
+34 966 460 407