Over the period of 1995 to 2007, the average price of property in Spain increased a massive 155%, falling only 22% since then. While this has meant either a windfall profit or an ever decreasing possibility of ever getting on the property ladder – depending on your perspective – the increase in wealth has not affected the average homeowner in Spain in terms of tax liability unless the property was sold and capital gains tax became due. This is about to change with the reintroduction of the wealth tax in Spain.
The wealth tax was never in fact withdrawn but rather any liability was exempted at a rate of 100%. Given the current crisis in government funding, the tax exemption is to be withdrawn, although the final decision must be made by the 17 regional governments in Spain.
Whether or not you will be liable for the wealth tax in Spain will therefore depend in which region you and your assets in Spain are located. located.
The next step is to determine the value of your assets – for the vast majority this means property. There is an exemption before which the tax applies, and this has been increased to €700,000 along with an exemption on property of up to €300,000 which effectively removes those with a total wealth of €1,000,000 from the tax. The government believes that the tax will thereby affect 160,000 people in Spain and drive revenue from the measure of €1bn.
Asset Valuation Rules
There are existing rules that are applied by the public administration to value property for the purposes of taxation. There are in fact three methods used to value a property:
- Catastral Value: This value is that which appears on the catastral registry and tends to be quite outdated and not representative of current market values.
- Purchase Price: Rather than the actual purchase price it is the price which appears on the deeds of transfer (in Spain the two are not always or even often the same) that this method measures.
- Other taxes: While the IBI tax uses a version of the catastral value, other taxes can also be used to assign a value to the property.
With regard to the wealth tax, the central Revenue service in Spain plan to use whichever is the highest of the above listed values.
Once the value of the property is determined it is important to understand how this amount is distributed. Where the property is owned by more than one person, for example by a married or unmarried couple, the attributed value must be divided between the two equally. Of course, it is necessary to divide only that value which exceeds €300,000 as below this amount is exempt.
Should the wealth of any individual exceed €700,000 the tax will be applied and it is currently being estimated that approximately 160,000 people will be liable to pay the new tax.