The tax will only bite in areas with high-end property markets that were not already taxing wealth, which basically means Madrid and Andalusia.
The Spanish government – a coalition of the moderate Left in the shape of the Socialists, and the hard Left in the shape of Podemos – is in the process of introducing a new tax on wealth that should be in place by the end of the year, which means it will apply to 2022.
It’s being introduced as a ‘temporary’ tax lasting two years, which would mean 2022 and 2023, but all ‘temporary’ measures introduced by this government that penalise property owners and wealth are indefinitely extended, so it’s reasonable to expect the tax to be renewed at the end of 2023 and onwards, for as long as this government is in power.
The political reasons for introducing this new wealth-tax are explained in this article by lawyer Raymundo Larraín, whilst this article by legal firm Del Canto Chambers explains how Spain’s new wealth-tax will work.
Spanish residents who are caught by this new wealth-tax will pay it on their worldwide wealth with a tax-free allowance of 700,000€, but non-residents will pay only on their assets in Spain, with no tax-free allowance. Some experts already argue that is unfair discrimination against non-residents that could be challenged in court.
You could ask yourself what right has Spain to tax the wealth of non-residents who have invested in the country and who also pay Spanish property taxes like the local rates (IBI) and an imputed income tax for owning property in Spain, even if they get no income from it. Depending on your point of view it looks like an unjustifiable tax that probably discourages investment in Spain.
But my question is where will this tax hurt the most from the point of view of second-home owners with expensive homes in Spain? It should be pointed out that this tax won’t affect any non-resident with a second-home in Spain worth less than 3€m, which is the vast majority of people.
The answer is in those regions where they don’t apply the current Wealth Tax (Patrimonio), and where homes worth 3€m or more are found in significant numbers. That means Madrid, the Marbella area, Sotogrande, and that’s about it.
The other parts of Spain with high-end property markets, namely Barcelona, some parts of the Costa Brava and Costa Blanca, and the Balearics, already apply the existing Wealth Tax at rates comparable to this new tax, so the impact will be small, and the Basque Country is exempt. Only Andalusia and Madrid will bear the full brunt of this new ‘Temporary Solidarity Tax on the Rich’, known in Spain as the Impuesto Temporal de Solidaridad de las Grandes Fortunas (ITSGF).
Roughly speaking, this new tax will mean a non-resident owner of a second home in Marbella with a tax value of 5€m will have to pay 34,000€ of wealth tax, on top of imputed income tax that depends on the cadastral value of the property. So we’re talking around 40,000€ per year.
Will this discourage demand for high-end homes in Spain? I would think so, but then again there are bound to be ways to structure new purchases so that the tax is minimised or avoided altogether, like buying in the name of several family members such that nobody owns a share worth 3m€ or more. It might even be a boon for high-end fractional ownership schemes.
Though called a tax on ‘great fortunes’, 3€m is not a lot of money by the standards of international wealth. Some people rich enough to afford a home worth 3€m in Spain might be flattered by a tax that puts them in the same bracket as Elon Musk, but most will draw the conclusion that Spain wants to soak the rich. Some of them will go elsewhere, and Spain will be poorer for it.