Thanks to our expert John Diking for this update.
Further to my earlier communications about elimination of Wealth Tax in Andalucia, please find further details below.
Wealth Tax is a tax on the net value of the assets owned, Spain being the only country within the EU where it applies. Spain is divided in 17 autonomous regions and this tax is completely shifted to regional governments.
We have received confirmation from our trusted external tax partners, Cuatracasas, Spence Clarke and London based firm Haines Watts that Andalucía’s Regional Government have made yet another significant change to taxes in the region, this time to benefit residents of Andalusia.
It all started on 5 April 2019 when the Peoples Party finally got into Government after 40 years of socialist control and they started on their tax reform programme by virtually eliminating inheritance and gift taxes between spouses and direct family members (Groups 1 & 2).
In an announcement made on the day of our Queens State Funeral, Juanma Moreno, the president of the Andalucían Regional Government, informed us that Andalucía will become, from Wednesday 21st September, the region with the lowest taxes after Madrid, by abolishing Wealth Tax with immediate effect. The last Wealth tax due was the tax paid in June 2022 for year 2021.
The new 100% exemption from wealth tax is justified with the complete logic that this abusive tax does not stimulate the growth of the economy and, in any case the tax collected is only 0,6% (95 million euros per year) of the budget of Andalucía. In fact, Juanma Moreno pointed out that the amount lost by suppressing Wealth Tax will easily be recovered as it will positively attract people to live in the region, particularly those who are asset rich. In addition, with a further announcement regarding the reduction of income tax, Andalucía is becoming more and more attractive to individuals on all fronts.
We expect that now many high-net-worth individuals, investors and businesses, will be attracted to establish their permanent residence in Andalucía, with their contributions stimulating the growth of the economy, jobs, better public services and security for its residents.
So, can we really say that Andalucía has become, like Madrid, something of a tax haven?
Perhaps not exactly a tax haven (which is not necessarily a good thing anyway), but certainly a very comfortable place for everyone from the modestly to the very wealthy. Most people believe that paying a reasonable amount of personal tax is reasonable, and indeed responsible, and it is only punitive taxation that scares them away.
The text of the new legislation will shortly be released and will also contain reductions in regional income tax rates for earned and other general income.
Here are the advantages of living in Andalucía, effective from 21st September 2022:
- Virtually nil inheritance and gift tax for close family.
- Individuals moving permanently to Spain from other countries can eliminate inheritance and gift tax permanently, if their affairs are properly organised.
- Maximum income tax of 26% in investment income. In fact, the rates are between 19% and 23% unless income/gains exceed 200.000€.
- Letting income is calculated after deducting all related expenses, including loan interest. Depending on other income, individuals moving to Spain could pay lower taxes than in the UK on the same income.
- Private pensions can be treated as investment income, taking income as the difference between sums invested and sums withdrawn. In some cases, tax can be as low as 2.5% of income drawn.
- A full range of international tax treaties that ensure that double taxation almost never occurs.
- No wealth tax liability!
- Income tax on non-investment income is also to be lowered by 4.3%
We know from discussions in the past with many, many, individuals wishing to move to Spain that Wealth Tax was the barrier stopping them from moving to Spain. So, getting rid of this tax will be a true game changer, especially when combined with near exemption from inheritance tax and the relatively attractive income tax regimes.
Individuals who would otherwise have considered moving to Madrid and even Portugal may now change their minds and move to Andalucía full time. With all the benefits of the sea, mountains and inland beauty of Andalucía, there is no doubt that Andalucía is now going to present real competition for those looking for tax-efficient living. Areas like Cataluña, the Balearics, Valencia and Murcia need to seriously rethink their tax systems and stop scaring off wealthy foreigners and Spanish nationals, with punitive taxes.
John DikingMSBA Dip PFS
Private Wealth Manager
Contact John here