The wealth tax in Spain and on Mallorca is a topic of particular importance for expatriates, investors, and individuals with high wealth. In recent years, tax laws in the Balearic Islands have undergone some adjustments, raising many questions. Common uncertainties involve tax exemptions, residency status, and regional differences within Spain.
In this article, we aim to provide you with a detailed overview of the current situation regarding the wealth tax in Mallorca and explain the recent changes. Don’t worry if you can’t remember everything: we also offer professional advice and support for these and other questions.
Content
- No more wealth tax on Mallorca?
- Wealth tax in Spain and Mallorca: From what amount?
- How high is the wealth tax in different regions of Spain?
- UK-Spain Double Tax Treaty
- Other relevant taxes when moving to Spain
- Smartly manage Wealth Tax on Mallorca and in Spain
No more wealth tax on Mallorca?
For a time, headlines in various media caused confusion: “Wealth tax abolished in the Balearic Islands!” – or similar sensational headlines. But it’s not that simple. In fact, the wealth tax in the Balearic Islands was not completely abolished, but it has been significantly reduced. The tax exemption in Mallorca was raised to a record level, so no wealth tax is due on assets up to 3 million euros.
Background of the tax reform
In 2023, the government of the Balearic Islands agreed on significant tax relief, which is set to take effect in 2024. The tax exemption was raised from the original 700,000 euros per person to 3 million euros. This measure makes the region more tax-attractive, especially for wealthy immigrants and investors.
Despite this increase, the wealth tax remains in place, but the amount of taxable wealth has changed due to the new exemption. In short: Contrary to misleading reports, the tax has not been completely abolished.
By the way: If you are an investor interested in moving to Spain, you should definitely take a look at the Golden Visa.
Wealth tax in Spain and Mallorca: From what amount?
The wealth tax in Spain applies to both residents and non-residents with a net wealth typically of at least €700,000. The calculation is done annually on December 31st. Each autonomous community in Spain can set its own tax-free thresholds, below which no wealth tax is due.
The wealth tax is levied on a person’s net wealth, meaning the difference between total assets and liabilities. This includes real estate, stocks, bonds, luxury goods such as yachts and artworks, as well as cash holdings.
Not only wealth held in Spain, but also assets held abroad are considered for taxation if the individual is a tax resident. Non-residents are only required to pay wealth tax on their assets located in Spain.
As mentioned above, starting in 2024, the tax exemption in Mallorca, Menorca, Ibiza and Formentera has been raised to 3 million euros per person. This exemption means that no wealth is taxed up to this amount. For a property used as a primary residence, an additional 300,000 euros can remain tax-free. This applies to both residents and non-residents.
Lex Beckham – An exception for high incomes
There are also benefits for individuals who fall under the so-called “Lex Beckham”. This special rule primarily applies to highly skilled foreign workers and entrepreneurs. Under this regulation, only wealth held in Spain is taxed, while assets located abroad are exempt from the wealth tax.
How high is the wealth tax in different regions of Spain?
In Spain, the wealth tax is administered by the autonomous communities (Comunidades Autónomas), meaning that the tax burden can vary significantly depending on the region.
Madrid and Andalusia have fully subsidized the wealth tax by 100%, meaning no wealth tax is due there. However, starting from the 2022/23 tax year, the solidarity tax may be applied in these regions instead.
On the Balearic Islands, which include Mallorca, the wealth tax on assets exceeding the exemption amount can reach up to 3.45%. This makes Mallorca’s wealth tax one of the highest. The tax progression starts at around 0.5% and increases with higher wealth.
The rates on the Balears are as follows:
| WEALTH | THE TAX |
| 3.000.000 € to 5.454.958 € | 2,35 % |
| 5.454.958 € to 10.909.915 € | 2,90 % |
| 10.909.915 € and more | 3,45 % |
In other regions, the tax rates can also vary. Regional differences can significantly impact the tax burden and should be considered when deciding on a residence in Spain.
The Solidarity Tax in Spain
In December 2022, the solidarity tax for large fortunes (ISGF) was introduced, which applies to residents and non-residents with wealth exceeding 3 million euros if they live in regions with significant tax exemptions or 100% relief, such as Madrid or Andalusia. This temporary tax affects only 0.1% of Spanish taxpayers.
The following tax rates apply to the solidarity tax on net assets:
- Up to assets of 3 million euros: 0 % tax
- For assets between 3 million euros and 5,347,998 euros: 1.7 % tax
- For assets between 5,347,998 euros and 10,696,996 euros: 2.1 % tax
- For assets over 10,696,996 euros: 3.5 % tax.
UK-Spain Double Tax Treaty
The Double Tax Treaty between the UK and Spain came into force to regulate how and where taxes on income and wealth are levied when an individual is a resident of both countries. The primary goal of this treaty is to avoid double taxation and prevent tax evasion. Even though the DTT stayed the same after Brexit, it is worth mentioning that citizens of the UK can only stay 90 days in Schengen countries without a visa. For longer stays you will have to apply for a “TIE” (Tarjeta de identidad de extranjero) or the Golden Visa.
What is covered by the treaty?
The treaty covers various types of taxes:
- In Spain, it applies to income tax and wealth tax.
- In the UK, it covers income tax and corporation tax.
Inheritance tax and gift tax are excluded from this agreement. The treaty does not apply to these types of taxes.
Special Implications for Property Owners and Landlords
If you are a resident in Spain and sell a property in another country, such as the UK, specific tax regulations apply. The Double Taxation Agreement (DTA) between Spain and the UK prevents double taxation. This means you pay taxes in the UK on the sale of the property because the property is located there.
However, as a resident in Spain, you are also required to declare the capital gain from the sale in your Spanish tax return.
To prevent you from paying the full tax on your gain in both the UK and Spain, the DTA comes into play: the taxes paid in the UK are credited against your Spanish tax liability, thereby reducing your overall tax burden in Spain.
Spanish residents with rental income from UK properties must also follow a similar procedure.
It is always advisable to seek professional tax advice to avoid making costly tax mistakes.
Other relevant taxes when moving to Spain
Other taxes that may be relevant for expatriates moving to Spain include:
1. Income Tax:
As a resident in Spain, you are subject to income tax on your worldwide income. However, there are exceptions in some cases where only Spanish-sourced income is taxed.
2. Property Taxes:
When purchasing property in Spain, various taxes apply, including the Property Transfer Tax (Impuesto de Transmisiones Patrimoniales) and Value Added Tax (IVA) if it’s a new property. There are also annual costs, such as the Property Tax (Impuesto sobre Bienes Inmuebles).
3. Business Taxes:
Those moving to Spain as entrepreneurs need to familiarize themselves with the Corporate Tax (Impuesto de Sociedades) and Value Added Tax (IVA). The corporate tax rate in Spain is generally 25%, while the VAT on most goods and services is 21%.
You can find more details in our article on taxes in Spain.
Smartly manage Wealth Tax on Mallorca and in Spain
The wealth tax in Mallorca remains a relevant issue for wealthy individuals and investors, despite the significantly increased exemption. The increase to 3 million euros provides considerable relief and makes the region more attractive from a tax perspective. However, it’s important to also consider the regional differences within Spain, the UK-Spain Double Tax Treaty, and exit taxes.
At Global Tax Saving, we offer our expertise to ensure that your tax matters in Mallorca are handled optimally and in compliance with the law. From the precise calculation of your tax liability to the filing of your tax returns, we support you with all aspects of wealth tax and other tax obligations in Spain.
Contact us now for a personalized consultation with our tax experts for Mallorca and Spain.
