Taxing wealth in Spain

Spain has a tax based solely on the wealth of individuals known as "impuesto sobre el patrimonio"(Spanish wealth tax) This tax is lev ied on the ownership of assets, such as immoveable property, cars, cash, shares,jewellery etc less any allowable charges and debts

(i.e. on the net wealth of an individual). It was originally brought in a number of years ago as a mechanism to force taxpayers to de clare what assets they owned and has remained until this day.

The tax year in Spain is the calen dar year and when deciding which assets are liable to wealth tax the residency of an individual must be ascertained.

Under Spanish domestic law, an individual is deemed to be "tax" resident in Spain if they spend 183 days or more in Spain (temporary absences are ignored unless they can prove habitual residence in another country).

If an individual spends under 183 days in Spain, the tax authorities can deem the individual a Spanish tax resident if their centre of vital interests are in Spain.The term cen tre of vital interests includes both personal and economic interests. An example of personal interests making an individual resident in Spain is if the individual's spouse and /or(minor)children habitually live in Spain.

Spain has entered into a number of Double Tax Treaties and as Dou ble Tax Treaties override domestic legislation it is possible that the above rules are overridden in cases of two countries claiming residency of the same individual.

The effect of residenc\'for wealth tax is as follows;

Residents

Spanish tax residents are liable to wealth tax on their worldwide assets. They also benefit from the following allowances:

" General allowance €108,182.18.

• Habitual residence €150,253.03. This allowance is available against the individual's main residence in Spain and is in addition to the general allowance.

• If the individual has a busi ness then (subject to a number of conditions) there is an allowance available against the value of their business.

•There is an automatic capping of wealth tax which is tied in to the amount of income received in the same year.

Non Spanish Residents

Non Spanish Residents are li able to wealth tax solely on assets located in Spain.

Non Spanish Residents do not benefit from allowances so they commence paving tax from over €0.00.

Valuing Assets

There arc various rules for valu ing different types of assets.One of the most common assets on which wealth tax is paid is immoveable property.The valuation ofimmove able property for wealth tax pur poses is based on the higher of;

• the catastral value (rateable value),

• the acquisition cost (as declared on the title deed)

• an official valuation undertaken by the tax authorities.

In practice, the acquisition cost on the title deed (la escritura) is used as it is usually higher than the catastral value and valuations by the tax authorities are not com monplace.

The value of assets and charges are usually based on the last day of the Spanish tax year (3U' De cember).

Tax Rates

The tax rates work on a sliding scale and vary from 0.02% - 2.5% depending on wealth.The tax rates are summarised below.

To conclude, Spanish residents are able to benefit from allowances to reduce their exposure to Spanish wealth tax, but are liable to world wide net assets. If their wealth is considerable then other forms of tax planning would need to be undertaken to try and minimise the affects of this tax.

Non residents are liable to net Spanish situs assets. For example, they can reduce their exposure to wealth tax on their Spanish holi day home by simply buying their holiday home with a mortgage reg istered in Spain. The net difference between the value of the property and the mortgage is what would be liable to wealth tax rather than the whole value of the property.