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Wealth tax in Spain: this is how what is actually paid with exemptions and by autonomous community is calculated

The wealth tax is a tax that, instead of taxing income or expenses, taxes the possessions of people. 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 for this type of tax to disappear, since between 2005 and 2009 it was eliminated in countries such as Sweden, Finland, Greece, Luxembourg and... Spain, although it was recovered again in 2010. It is also It is true that France established its own in 2019, although it previously had a different one.

Who is affected by wealth tax?

The wealth tax affects only natural persons, never legal entities. It is also an individual tax, regardless of whether there is a marriage under community property.

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There are two types of people who are affected by wealth tax in Spain: residents in Spain, with said tax affecting all assets and rights owned by this person, including those 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 thing 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 ceded to the Autonomous Communities, and some of these have changed the regulation (the brackets, the minimum exemptions, bonuses, etc.).

The regional regulations where they live apply to residents. Until recently, state regulations were applied to non-residents, 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.

Wealth tax scale in 2020. For 2021 the last section has been increased to 3.5%, it will affect the declarations made in 2022

First you have to add up all the assets and rights of the affected person, subtracting 300,000 euros in the case of the habitual residence. Debts will then be subtracted to get net worth. Once this is done, the minimum exempt amount, which is 700,000 euros, will be subtracted from this heritage. And on this taxable base, the calculation of the tax to be paid will be made, which goes by sections (from 0.2% to 3.5%). Finally, deductions, reductions and bonuses are applied and the full fee is paid.

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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 owns a car worth 60,000 euros. The wealth tax is individual, so everything will have to be divided between two. The house (500,000 euros between two, 250,000 euros), being less than 300,000 euros, this property is left out, with the net worth of each one being 780,000 euros. The minimum exempt is 700,000 euros and therefore each person in the marriage will have to pay taxes for 80,000 euros, which is in the lowest bracket, 0.2%. Therefore 160 euros each.

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Another example would be a foreigner who has a home worth 1,000,000 euros in Spain, but who does not reside in our country. Since said home is not his residence, the concept of habitual residence would not apply and only the minimum amount of 700,000 euros would apply. Therefore, the tax base would be 300,000 euros and the tax payable would be 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 his residence was transferred to his home in Spain, then it would affect all of his assets. .

regional regulations

The truth is that many Autonomous Communities have modified the state regulations of the wealth tax. For example, the scale that we have seen previously has been modified by Andalusia, Asturias, Balearic Islands, Cantabria, Catalonia, Extremadura, Galicia, Murcia and Valencia.

In addition, the minimum extent is modified (and therefore it is not 700,000 euros) in Aragon, Catalonia, Extremadura and Valencia. And also in some Autonomous Communities there is a greater number of exempt goods (such as forestry goods in the case of Catalonia).

There are also tax rebates, which some Communities apply in the case of disability. But the most famous bonus is that of Madrid, which unconditionally bonuses 100% of the resulting fee. Therefore, in Madrid no wealth tax is paid.

Heritage Valuation

One of the problems of the wealth tax is the valuation of assets. It is relatively easy to know how much money you have in a bank account or shares that are listed on the stock exchange, but other assets and rights are not so easy. For example, houses.

The valuation of the home for the wealth tax 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 between the value at December 31 and the average balance of the last quarter is taken.

For shares, promissory notes and bonds, if they are listed on a stock market, the market value (average value of the last quarter of the year) will be used. And if they are not listed, they are taken into account at nominal value.

It is important to know that pension plans are exempt from wealth taxation.

Joint limit for personal income tax and taxes abroad

Apart from the regional deductions, rebates and reductions, there are two state-wide ones that are important to consider.

The first is the reduction by the 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 personal income tax and 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, you must first add the full installments of personal income tax and wealth tax. If this sum exceeds 60% of the general tax bases and the personal income tax savings, then the wealth tax is reduced so that this limit is not exceeded. Of course, the maximum reduction of the fee is 80%, if the reduction is exceeded then the wealth tax may exceed this 60%.

The calculation has some nuances, such as the fact that capital gains and losses generated in more than one year are not taken into account in the tax base of savings and that unproductive assets are not taken into account for the reduction of capital.

Let's see it with an example. A person in personal income tax has as the sum of the general taxable bases and the savings of 51,000 euros (what he has earned for personal income tax purposes). In addition, his general and savings total fee is 12,597 euros (what he pays in personal income tax). In the case of the wealth tax, it has a tax base of eight million euros and a full fee 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 of the wealth tax to be paid would be 21,768.66 euros ( €108,843.30 - €87,074.64).

On the other hand, if the declarant has assets abroad and in said country has paid a tax equivalent to the wealth tax for said assets, this value can be deducted in the declaration (at most the part of the quota generated by said assets).

Who has to file the estate tax return?

One last question remains, and that is about the presentation of the declaration. On the one hand, those whose quota comes out to enter are obliged to present the wealth tax declaration. That is, those who have assets above 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) exceed two million euros are also required to file the wealth tax return.

Let's take an example. A person has all his assets accumulated in his home of 2,100,000 euros, but 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 his gross assets are above 2 million euros, he is obliged to file the declaration.

Wealth tax in the Autonomous Communities

As we have detailed, the wealth tax is a state tax ceded to the Autonomous Communities. Therefore, they can modify the brackets, discounts, reductions, deductions and even exempt goods. Many have done so, to a greater or lesser extent.

However, in the Autonomous Communities, the Basque Country and Navarra, the tax does not apply to their residents, since the local Treasury is responsible for establishing said tax.

Despite this ability to regulate their own wealth tax, both Communities have established regulations very similar to those of the state. If we look at that of Navarra, it will be seen that the main nuance (apart from the fact that the exempt minimums and the tax table varies, but as in many other Communities) is that there is an obligation to declare if the gross assets exceed 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 regulations (although they are very similar to each other and also very similar to the state regulations). In Álava and Vizcaya, the minimum exempt amount is 800,000 euros, while in Gipuzcoa the main residence is exempt up to 400,000 euros and the obligation to declare is only if the gross assets exceed three million euros.

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