New Wealth Tax in the Balearics
Spanish wealth tax has effectively been eliminated for most residents and property owners in the Balearics (Mallorca, Menorca and Ibiza). From this year onwards, only those with assets above €3 million will be liable for wealth tax.
In welcome news, the government of the Balearic autonomous region announced significant changes to the wealth tax allowances in December.
Changes to wealth tax in the Balearics
As part of the agreement reached by the leading PP and Vox parties on the regional budget for 2024, the general wealth tax deduction has increased from the standard €700,000 to €3,000,000.
This applies from the 2024 wealth tax returns, which are submitted in 2025.
This change does not affect the application of Spain’s temporary Solidarity Tax, which applies to taxable assets exceeding €3,000,000.
A reminder of Spain’s wealth tax rules
In Spain, wealth tax is calculated based on the value of your assets as at 31 December each year. If you are a resident of Spain, it applies to your worldwide assets. For non-residents, it affects Spanish assets only.
The tax is payable on the net value of most of your capital assets, such as real estate, savings and investments, shareholdings, jewellery, art, antiques, cars, boats, etc.
Each individual, resident or otherwise, receives a personal tax-free allowance of €700,000 under state rules. Spanish residents can get an additional allowance of up to €300,000 against the value of their main home (excluding properties owned through corporate structures).
Importantly, the autonomous regions can vary wealth tax rates and allowances, which is how the Balearics has increased its personal allowance to €3 million. If you are a resident of the islands, you also have the €300,000 main home allowance.
Individuals with wealth exceeding the allowances will pay tax at 2.35% for the excess up to €5,454,958, then 2.9%, then 3.45% for anything above € 10,909,915.
This reform helps the Balearics compete with Andalucía and Madrid which both provide a 100% tax-free relief.
A second wealth tax, Spain’s ‘solidarity tax on large fortunes’ was introduced in 2022 as a temporary levy. The rules, rates, and allowances are the same as the standard wealth tax but only apply to wealth above €3 million, and you then get the two deductions mentioned above. The major difference is that it is applied at the state level and the autonomous governments cannot change it.
If you pay Spain’s regular wealth tax, you deduct the amount paid from your solidarity tax liability, so you do not pay tax twice.
Wealth tax in the Balearics – case studies
These two examples (for illustrative purposes only) show what a difference this Balearic reform will make.
Paul lives in Mallorca and owns a property worth €1,000,000 and other assets worth €500,000. Before the changes, he would have had to pay the higher of the wealth tax liability of approximately €2,300 or solidarity tax of nil. For 2024, he will not have any wealth tax to pay due to the increased allowance or any solidarity as the liability is nil.
Anna lives in Mallorca and owns a property worth €3,500,000 and has investments worth €800,000. Before the changes, she would have had a wealth tax liability of approximately €50,000 and a solidarity tax liability of €5,100. Therefore, she would have paid just the Balearics’ liability since the wealth tax is higher than the solidarity tax. Under the new rules, her wealth tax liability would be reduced to approximately €7,500. Again, the solidarity tax liability is lower than the wealth tax liability so only the liability in the Balearics is payable.
Tax planning in Mallorca
This Balearic tax reform is certainly welcome news, offering substantial tax savings. But it emphasises the need for specialist advice from experienced advisers, to not only take advantage of these changes but also other aspects of the regional Spanish tax system.
At Lullius Partners we provide market-leading advice to individuals from around the world, groups of companies and family businesses in need of joint tax and legal advisory and compliance services, including Spanish, cross-border and international taxation as well as business and legal issues which may affect their global wealth. We field an expert multi-disciplinary team to address all of our clients’ legal needs.
(*)Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.