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TAXES

Spain’s Andalusia to scrap wealth tax in bid to attract high earners

The Andalusian government has announced it will scrap a tax which wealthy residents and non-resident homeowners in the region have to pay on their worldwide assets. 

Published: 20 September 2022 09:12 CEST
spain andalusia wealth tax
According to Moreno, Andalusia’s impuesto de patrimonio has been “an obstacle for investment”. (Photo by CRISTINA QUICLER / AFP)

Andalusian regional president Juanma Moreno on Monday announced that wealthy residents and non-residents (second home-owners in the region) will no longer have to pay el impuesto de patrimonio, as wealth tax is called in Spanish.

From Wednesday September 21st 2022, Spanish nationals and foreigners who reside in the southern Spanish region or have a second home there, and whose worldwide assets are above €700,000, will receive a 100 percent tax deduction on said wealth tax. 

In other words, they will not have to pay any tax on their assets as is the case in almost all of Spain’s regions. 

The regional governments of the country’s 17 autonomous communities have the freedom to introduce tax deductions (bonificaciones) and asset exemptions as they see fit, but up to now the only region in which the wealth tax was non-existent was Madrid. 

READ MORE:  Why you should move to Madrid if you want to pay less tax in Spain

According to Moreno, Andalusia’s impuesto de patrimonio has been “an obstacle for investment” and he stressed that its cancellation won’t have a major impact overall in terms of tax collection in the region as it only represents 0.6 percent of Andalusia’s yearly tax revenue (€95 million). 

Instead, he argued that it would attract approximately 7,000 new high-earning tax contributors to Andalusia. 

“The aim of this is that certain high earners become residents in Andalusia and thus pay their taxes in the region, as well as making Andalusia the region with the least taxes together with Madrid,” the right-wing leader told journalists. 

Around 20,000 people in Andalusia paid wealth tax in 2021. 

Up until now, taxpayers in Andalusia with their primary residence in the region did not have to include this as an asset in the €700,000 wealth tax calculation if the property was valued below €300,000.

If their worldwide assets still surpassed €700,000, they would have to pay between 0.2 and 2.5 percent on any amount above the aforementioned threshold. For example, if a person’s worldwide assets added up to €750,000, they would pay 0.2 percent tax on €50,000.  

READ ALSO: The new tax laws in Spain’s Andalusia in 2022

The Andalusian leader also announced his government would ‘deflate’ its income tax rates through a process called deflactación del IRPF, which essentially sees this progressive tax factor in the effects of inflation on purchasing power.

Therefore, workers in the region with yearly earnings between €12,450 and €35,200 will pay less income tax.

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TAXES

How wealthy people in Spain are avoiding the millionaire tax

It may come as no surprise that the Spanish government has collected far less money than expected from the millionaire tax, as wealthy people have found several ways to avoid paying it.

Published: 16 April 2024 09:40 CEST
How wealthy people in Spain are avoiding the millionaire tax

Spain’s temporary tax on the super rich (impuesto de solidaridad a las grandes fortunas) is usually referred to as the millionaire’s tax or solidarity tax. It’s a tax on people worth more than €3 million and it’s not a tax on income, but rather on assets and holdings.

It was introduced by the country’s left-wing coalition in an attempt to help Spaniards weather the economic storm of the cost-of-living crisis. But as of September 2023, around a year after the tax measure was first brought in, the Spanish government reported that it had raised €623 million in revenue, a decent amount but considerably less than the initial projection of €1.5 billion. We now may know why that is.

According to tax data, the millionaire’s tax targeted just 12,010 payers, which represents barely 0.1 percent of the total taxpayer base in Spain.

On average these high-worth individuals each paid €52,000, which is complementary to the Wealth Tax (impuesto patrimonio).

However, though it was supposed to be a temporary tax measure, there’s now some uncertainty about exactly how temporary it is going to be in the long-run. The government has been making non-comital noises as of late, and amid the uncertainty many wealthy Spaniards have begun trying to find ways around paying it and trying to reduce their wealth tax bill overall.

READ ALSO: When will Spain’s millionaire tax be scrapped?

Donations

A lot of it comes down to ‘donations’ in order to make the money non-taxable or to reduce the taxable base on paper.

Spanish tax consultancy firms consulted by elEconomista.es report an increase in requests for help arranging ‘donations’ from parents to children or spouses in recent years, as well as the arranging inheritance agreements in the regions that allow deductions to offset the tax burden of the millionaire’s tax.

Donations are sometimes done through money and shares, but donating properties also seems to be a way of avoiding extra taxes, although property donations can work out more expensive due to the procedures to be followed and the taxes to be paid on property transactions in Spain.

The aim is to avoid paying the millionaire’s tax by splitting up the fortune, essentially because donations between family members is a way to reduce the level of wealth (on paper) and thus keep it below €3 million, the taxable base from which the millionaire’s tax is levied.

This trick is even more beneficial in regions where donations are subsidised, such as Madrid and the Balearic Islands, where inheritance agreements can be made, because any capital gain generated by the donation is not taxed.

READ ALSO: Inheritance tax in Spain – Should you pass your property on to your children or sell it to them?

Venture capital firms

Another method increasingly used by the wealthy seems to be setting up and putting money in venture capital or private equity firms.

According to Spain’s National Securities Market Commission, the creation of venture capital firms has grown by 38 percent since the government first announced the millionaire’s tax.

Siro Barro, partner in charge of tax law at Escalona de Fuentes, told El Economista that setting up venture capital firms are appealing because 60 percent of the investment made by creating a fund or equity can be exempt from both forms of tax in certain circumstances.

Tax experts expect the trend of creating and investing by the wealthiest taxpayers into private equity entities to continue to rise as long as the solidarity tax continues to exist, as with the donations loophole.

With the government yet to outline when this supposedly temporary tax will be scrapped (if at all), it seems these sorts of tricks, whether through donation or venture capital investment, are here to say.

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