Relevant changes affecting Wealth

Other News, Fiscal News


Last Saturday 10 July 2021 the Spanish Official Gazette published Law 11/2021 which introduces relevant changes in the Spanish Wealth Tax that may affect you or your clients.

This Law contains many amendments to the Spanish tax system, but we will focus on those that have an impact on financial products commercialized by certain Wealth Management firms.

The Wealth Tax have an important impact on the annual financial needs of retired people living in Spain, specifically in those regions where the Wealth Tax is still applicable, such as Andalusia.

There are many British retired individuals that have moved to Spain in the last years who has their wealth invested through QROS and/or QNUPs or through “Spanish Compliant Bonds” commercialized by many wealth management financial firms.

QROS and QNUPS are retirement plans designed for UK nationals to comply with the UK regulations so that those UK nationals living out of the UK can keep their pensions and apply certain benefits in the UK upon their death.

In Spain, the taxation of these financial products is complex since we do not have equivalent rules and the foreign financial institutions managing them do not have, most of the times, the proper information needed in Spain to determine the taxable amount of these products.

One of the main advantages of these type of investment was the combination between the specific tax treatment applicable in the Income Tax and the specific valuation rule applicable for Wealth tax, which in most of the cases lead to important reductions in the global tax payable in Spain.

The Spanish Tax Authorities were well aware of these practices and in order to cut off some benefits connected to these investments, through the Law 11/2021, the valuation rules for Wealth Tax of the following products have changed with effects year 2021. This change along with the new rules applicable to the valuation of real estate property will for sure result in an increase of taxes for residents of Andalusia.

New valuation rules applicable for Wealth Tax affect life insurance contracts and annuities:

  1. Life insurance policies where the policy holder did not have any type of redemption right during the period of the contract (commonly known as Unit Linked products). The Spanish tax authorities’ official criterion was that during the time the taxpayer did not have any type if right to redeem the policy, the amount of that life insurance policy was not taxable in the Wealth Tax.

Now, with the entry into force of Law 11/2021 any life insurance policy, even though no redemption right is available, will be taxable on  the value of the mathematical provision by the end of each year.

  1. Annuities contracted in the form of a life insurance policy which formerly were valued for Wealth Tax under an specific rule (capitalization rule) depending on whether it was a lifetime annuity or a temporal annuity, will be -from now on- valued by the redemption value or the mathematical provision by the end of the year. Only pure annuity contracts will remain unchanged.

Given these relevant changes introduced in the Wealth Tax valuation rules, we encourage you to review the impact they may have on your taxes for year 2021 and see if there are other alternatives to reduce cost of taxes.

If you need further professional assistance please contact us.

Pitu Domecq
Socia – Tax


Tax Advisory
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