Will owning a Property in Spain make you liable to the Wealth Tax?

Check out the most complete guide available in English on Spanish Property Law.

Over the period of 1995 to 2007, the average prices 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 home owner in Spain unless the property was sold and capital gains tax became due. This may be about to change with the reintroduction of the wealth tax in Spain.

In a recent article the Spanish government’s plans to reintroduce the wealth tax after a four year hiatus were highlighted. The wealth tax was never in fact withdrawn but rather any liability was exempted at a rate of 100%. Given the current crisis in government funding, the tax exemption is to be withdrawn, though the final decision is to be made by the 17 regional governments in Spain.

At the moment the regional governments appear to be split as to whether or not to reactivate collection of the tax, mostly, but not exclusively, along party political lines with most autonomous communities led by the socialist party planning to implement the tax while those governed by the PP conservative party stating that they will not.

So, the first step to answering the question of whether your property will make you liable to the wealth tax will depend on where your property is located.

The next step is to determine the value of the property. Under the current proposals, the first €300,000 of the value of any property shall not be counted towards a person’s computed wealth. However, the question arises therefore as to how the government plan to value properties for the purposes of the wealth tax.

There are existing rules that are applied by the public administration to value property for the purposes of taxation – currently they are employed to determine the value of properties for IBI tax purposes (rates).  There are in fact three methods used to value a property:

1)      Catastral Value: This value is that which appears on the catastral registry and tends to be quite outdated and not representative of current market values.

2)      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.

3)      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 is exempt. Should the wealth of any individual exceed €700,000 the tax will be applied with it currently being estimated that approximately 160,000 people will be liable to pay the new tax.

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