What is wealth tax in Spain and who must pay it?

Wealth tax is a direct tax on your entire net worth. In other words, whether you are a Spanish tax resident or a non-resident, you will have to pay Wealth Tax based on the requirements of the different autonomous communities in Spain. The dates for filing Wealth Tax are the same as those for the Personal Income Tax return (IRPF), between April and June of each tax year.

The form to be filled in if you are obliged to file it is form 714. If you are a Spanish tax resident, you will have to declare the tax based on all your worldwide wealth, while if you are a non-resident, you will have to declare the tax based on the value of your properties located in Spanish territory. Mortgages are deductible for Wealth Tax purposes.

Wealth Tax in Spain

Wealth Tax deductions for non-residents lionsgate capital

Non-residents are entitled to an individual tax relief of up to €700,000 per person whilst Spanish tax residents are entitled to a deduction of 800.000€. In other words, if you and your partner purchase a property together in Ibiza, Mallorca, Menorca, Marbella or in another region of Spain, you can benefit from a combined tax deduction of up to €1,400,000. In addition, mortgages are deductible for tax purposes therefore it makes sense to finance, especially in high-value properties.

Wealth Tax rates lionsgate capital

Depending on the area in Spain you decide to purchase a property in, the yearly tax rates range from 0.28% for net assets of less than €170,472 up to 3.45% for taxpayers whose net assets are worth €10,909,915 or more. The taxable base is calculated taking into account the value of the net assets at the end of the tax year, i.e. on 31 December of each year and is paid every year!

As with Wealth Tax, you will have to pay Inheritance and Gift Tax whether you are a resident or non-resident. The Wealth Tax is paid to the autonomous communities, some of which apply a series of allowances so that, in practice, you pay a symbolic amount.

If you are a non-resident, you must file form 650 for inheritances and form 651 for donations. The taxable base of the tax is made up of the actual value of the assets acquired minus deductible debts and charges, including mortgages.

Inheritance and Gift Tax in Spain lionsgate capital
What property value is used to calculate the different taxes in Spain

The property value taken into account to calculate Wealth Tax and Inheritance and Gift Tax is the higher of the following:

  • Cadastral reference (an official and obligatory identifier for real estate in Spain)
  • Cadastral value (the value that the Spanish administration gives to each property, based on data found on the land registry)
  • The price agreed in the purchase deed

Both in the case of Wealth Tax and Inheritance and Gift Tax, you will only have to pay tax on your net assets.

In the case of real estate, the value of the property is reduced by the mortgage, as long as the mortgage is in place at the time of purchase and is directly associated to the purchase of your home. By mortgaging you can save substantial funds, especially if we consider the tax deductions together with the current low interest rates and how you can optimize your investment by mortgaging the maximum amount and maintaining liquidity to invest in other areas with higher returns.

For this reason, at Lionsgate Capital we recommend financing the maximum amount when buying a property in Spain, as it makes sense to benefit from the advantages of financing whilst continuing to make money with your money!

Mortgage costs
Mortgage to save property taxes in Spain lionsgate capital

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