Farewell to the Wealth Tax
8 / 8 / 2008
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The new Government of José Luis Rodríguez Zapatero has included the removal of Wealth Tax in its first 11 measures to reactivate the Spanish Economy. This decision, announced during his campaign for re-election, was not expected at this early stage, and brings an important incentive to residents and non-residents. The Wealth Tax will be paid in respect of the year 2007 for the last time. This tax, considered by most experts as obsolete, was only paid by around 1 million taxpayers, many non-residents.

Wealth Tax is payable for the year 2007 on the net worldwide wealth of individual Spanish residents, with a general allowance of the first? € 108.182, 18, and allowance for the habitual place of abode of up to € 150.253,03. The allowances do not apply to non-residents. The tax is calculated on a sliding scale from 0.2% to 2.5%.

The disappearance of the Wealth Tax constitutes a major incentive for foreign residents and non-residents. This tax was an important drawback in considering Spain as an option for residence. High net worth individuals sheltered their wealth in corporate structures to reduce wealth tax. However many foreign residents owning assets in Spain and elsewhere and non-residents owning property in Spain faced an annual bill for Wealth Tax which in some cases was quite onerous.

Wealth Tax was one of the taxes ceded to the Autornomous Governments yet managed and controlled by the Central Tax Authorities. The reduction in tax collection, estimated at € 1.800 million, will have to be compensated in some way by the Central Government. Other taxes ceded to the Autonomous Governments include Inheritance Tax, Transfer Tax and Stamp Duty. Changes in Inheritance Tax have already started in some regions, Madrid leading the way with virtual exemption from Inheritance Tax.

This is a step in the right direction, which will be welcome by the foreign resident and also non-resident property owners. The Authorities should extend this incentive improving the Inheritance Tax in the whole of Spain.

Bernard Fay Viota

(Bernard Fay Viota is a partner with UHY Fay & Co)

Article published in Sur in English (25/04/2008)

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