The wealth tax It is a tax that, instead of taxing income or expenses, taxes people’s possessions. There are not many countries that have it established, but Spain is not alone in this boat either: France, Switzerland, Norway or the Netherlands have similar taxes.
The tendency, in general, is that these types of taxes disappear, because between 2005 and 2009 it was eliminated in countries such as Sweden, Finland, Greece, Luxembourg and … Spain, although it recovered it again in 2010. It is also true that France established its own in 2019, although previously it had a different one .
Who is affected by the wealth tax?
The wealth tax affects only natural persons, never to the legal ones. It is also an individual tax, regardless of whether there is a marriage in a community property regime.
There are two types of people who are affected by the wealth tax in Spain: to residents in Spain, affecting said tax to all the assets and rights that this person possesses, even those that are located abroad; but it also affects non-residents in Spain (including foreigners) as long as they have assets or rights in Spain, although on this occasion the tax only affects assets and rights that are within Spanish territory.
Of course there is a double tax deduction, to avoid having to pay taxes for the same in several countries. We will see later.
State regulations and regional regulations
It is important to know that the wealth tax is a tax regulated by the state but assigned to the Autonomous Communities, and some of these have changed the regulation (tranches, extended minimums, bonuses, etc.).
Residents are subject to the regional regulations where they live. And to non-residents until recently the state regulations were applied, but since the last reform the regional regulations of where most of the assets are located have been applied.
How is it calculated?
To explain the calculation, we are going to use the state regulations as a reference, taking into account that there are variations depending on the Autonomous Community.
First you have to add all the assets and rights of the affected person, subtracting 300,000 euros in the case of the habitual residence. Then the debts will be subtracted to obtain the net worth. Once this is done, the exempt minimum, which is 700,000 euros, will be subtracted from this patrimony. And on this taxable base, the calculation of the tax to be paid will be carried out, which goes by sections (from 0.2% to 3.5%). Finally, deductions, reductions and bonuses are applied and the entire fee to enter comes out.
Let’s take an example. A married couple lives in a house worth 500,000 euros, has investment funds worth 1,500,000 million euros, and a car owned by 60,000 euros. The wealth tax is individual, so everything will have to be divided by two. The house (500,000 euros between two, 250,000 euros), being less than 300,000 euros this property is out, with the net worth of each 780,000 euros. The exempt minimum is 700,000 euros and therefore each person in the marriage will have to pay 80,000 euros, which is in the lowest bracket, 0.2%. Therefore 160 euros each.
Another example would be a foreigner who has a house of 1,000,000 euros in Spain, but who does not reside in our country. As this home is not your residence, the concept of habitual residence would not apply and only the minimum extension of 700,000 euros would apply. Therefore, the taxable base would be 300,000 euros and the tax payable 732.89 euros (0.2% of the first 167,129.45 euros and 0.3% of the rest). As we have explained to a person, the Spanish wealth tax would not apply to assets and rights that are not located in Spain, but If for some reason your residence were transferred to your home in Spain then it would affect all your assets.
The truth is that many Autonomous Communities have modified the state regulations on wealth tax. For example, the scale we have seen previously Has been modified for Andalusia, Asturias, Balearic Islands, Cantabria, Catalonia, Extremadura, Galicia, Murcia and Valencia.
What’s more, the minimum length is modified (and therefore not 700,000 euros) in Aragon, Catalonia, Extremadura and Valencia. And also in some Autonomous Communities there is a greater number of exempt assets (such as forest assets in the case of Catalonia).
There are also tax credits, which some Communities apply in the case of disability. But the most famous bonus is Madrid, which grants 100% of the resulting fee unconditionally. Therefore In Madrid you do not pay wealth tax.
One of the problems of the estate tax is the valuation of assets. It is relatively easy to know how much money you have in a bank account or publicly traded stocks, but other assets and rights are not so easy. For example, the houses.
The valuation of the home for the wealth tax it is always the maximum between the cadastral value, the purchase value of the home and the value verified by the Administration for the purposes of other taxes.
In the case of accounts and deposits the maximum is taken between the value at December 31 and the average balance for the last quarter.
For stocks, promissory notes and bonds, if they are listed on a stock market, the market value will be used (average value of the last quarter of the year). And if they are not listed, they are taken into account at face value.
It is important to know that pension plans are exempt from wealth tax.
Joint limit for personal income tax and taxes abroad
Apart from deductions, allowances and reductions Autonomous there are two at the state level that are important to contemplate.
The first is reduction by joint limit of personal income tax. This reduction allows that even if you have a large estate if said person does not have a large income, it will significantly reduce the amount to be paid. The idea is that the sum of the personal income tax and the wealth tax does not exceed 60% of the income that said person has had during the year. This reduction, by the way, only applies to people who pay wealth tax while being residents (logical, since non-residents do not pay personal income tax).
For the calculation First you have to add the full income tax and wealth tax. If this sum exceeds 60% of the general taxable income and personal income tax savings, then the wealth tax is reduced so that this limit is not exceeded. Of course, the maximum reduction in the fee is 80%, if the reduction is exceeded then the wealth tax may exceed this 60%.
The calculation has some nuances, such as that the capital gains and losses generated in more than one year are not taken into account in the tax base of savings and that non-productive assets are not taken into account for the reduction of equity.
Let’s see it with an example. A person in personal income tax has the sum of the general tax bases and savings of 51,000 euros (what he has earned for income tax purposes). In addition, his total general and savings quota is 12,597 euros (what he pays in personal income tax). In the case of wealth tax, it has a taxable base of eight million euros and a full tax of 108,843.30 euros. In this case, the limit of the full share of the wealth tax is 60% of the income tax base, that is, 30,600 euros (51,000 x 0.6). And therefore the theoretical reduction is 90,840.30 euros (108,843.30 + 12,597 – 30,600). However, as the maximum reduction of the full share of the wealth tax for this concept is 80% of the full share then this reduction is 87,074.64 euros and the share to be paid from the wealth tax would be 21,768.66 euros (108,843.30 euros – 87,074.64 euros).
On the other hand, if the declarer has assets abroad and in said country has paid a tax equivalent to that of patrimony for said assets, this value can be deduced in the statement (at most the part of the fee generated by said goods).
Who has to file the wealth tax return?
One last question remains, and it is about filing the declaration. On the one hand, those whose quota comes to pay are required to present the declaration of wealth tax. That is, those who have assets greater than the exempt minimum (also taking into account that the habitual residence below 300,000 euros is not taken into account). We must also remember that we are talking about net worth, that is, if there are debts they are subtracted from the gross equity.
On the other hand, those whose gross assets (that is, without taking into account debts) are also obliged to file the wealth tax declaration. exceeds two million euros.
Let’s take an example. A person has all his equity accumulated in his home of 2,100,000 euros, but he has a mortgage for it of 1,200,000 euros. His net worth is 900,000 euros, and since it is his habitual residence, the home would appear in the wealth tax as 600,000 euros, below the exempt minimum and he would not have to pay any wealth tax. However, as your gross assets are above 2 million euros, you are required to file the return.
Wealth tax in the Autonomous Communities
As we have detailed, the wealth tax is a state tax assigned to the Autonomous Communities. Therefore these can modify the sections, discounts, reductions, deductions and even exempt assets. Many have, in greater or lesser depth.
However, in the Autonomous Communities, the Basque Country and Navarra, the tax does not apply to its residents, since the local Treasuries are in charge of establishing said tax.
Despite this ability to regulate their own wealth tax, both Communities have established regulations very similar to the state one. If we look the one from Navarra It will be seen that the main nuance (apart from the fact that the exempt minimums and the tax table vary, but as in many other Communities) is that there is an obligation to declare if the gross equity exceeds one million euros (and not the two million as in the rest of Spain).
In the case of the Basque Country, as the collection of taxes is the responsibility of the councils, each province has its own regulations (although they are very similar to each other and also very similar to the state regulation). In Álava Y Biscay the exempt minimum is 800,000 euros, and instead in Gipuzcoa the habitual residence is exempt up to 400,000 euros and the obligation to declare is only if the gross equity exceeds three million euros.
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