The wealth levy, which applies a national 2.5% tax on worldwide assets valued over €10.6m (£9.03m, $11.3m), was reintroduced by the government in 2011 due to Spain’s severe economic downturn following the global financial crisis (GFC).
Successive Spanish governments have reviewed the wealth tax on an annual basis and in 2016, for the first time in six years, the general budget announced it would scrap the tax with effect from 1 January 2017.
However, Spain, which is home to an estimated 800,000 British expats, has reneged on proposals.
Spain’s tax office, Agencia Estatal de Administracion Tributaria, more commonly known as the Hacienda, has confirmed that it will retain the wealth tax.
Jason Porter, director of European IFA firm Blevins Franks, told International Adviser that political uncertainty in Spain during 2016, driven by mixed results in two general elections, cast doubts as to whether the government would push ahead with the “promised abolition”.
“There are no changes to Spanish income or wealth tax for 2017 – except that the promised abolition of wealth tax has not come to pass.
“Political instability in Spain, with two general elections delivering uncertain results, made the wealth tax position unclear. Spain has now managed to form a government, and it has been agreed that wealth tax will be payable after all for fiscal year 2017.”
Porter explained that it’s likely the government decided against scrapping the levy as Spain is required by the European Union to reduce its national deficit to 3.1%.
“It [Spain] has agreed with the EU to introduce measures to increase the amount of tax it collects in 2017 to help achieve this target,” he added.
Spain’s wealth tax had previously been abolished by the Hacienda in December 2008 when the state approved a measure to apply a 100% tax credit against an individual’s Spanish wealth tax liability therefore removing the requirement for residents to file a tax return on worldwide assets, known as Modelo 720.
Although the national rate has a maximum ceiling of 2.5%, Spain’s 17 autonomous regions have considerable freedom in how they set their rates.
For example, Andalucia has a top rate of 3.03%, Cataluña 2.75%, Murcia 3.00%, Valenciana 3.12% and Isla Baleares 3.45%.
“Whilst this tax is an important source of income for the autonomous Regions, it has led to a considerable exodus of the wealthy, in particular around Marbella and on Majorca,” according to Porter, whose firm has offices across Spain, Portugal and France.
Last October, Spain unveiled a new rule requiring British expats to declare the money they have in Malta-based recognised overseas pension schemes (Rops) that allow ‘flexi-access’ in line with the UK’s pension freedoms introduced last year.
The new reporting requirement has been brought in under the existing Modelo 720 regulation, introduced in 2012, which means every expat must declare all foreign assets over €50,000.