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Case Study Wealth Tax

This information has been prepared by Sykes Anderson Perry Limited as a general guide only and does not constitute advice on any specific matter. We strongly recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not taken as a result of any information or advice given or omitted

Lee who is a UK resident entrepreneur bought a villa in Marbella 3 years ago for €20 million. The property has gone up in value to around €25 million and Lee has also made some improvements to it. It is not rented out though Lee lets his family and friends use it from time to time. He bought it with a mortgage of €14 million (the outstanding mortgage is €12 million) from a Spanish bank and a loan of €6 million from a BVI company he controls. He paid for €1 million of improvements from his own personal money. The property has a rateable value of €5,000,000. He has recently received a letter from the Spanish tax authorities asking about submission of Wealth Tax Declarations.

It will be necessary to ascertain the rateable or cadastral value of the property. It is advisable prior to purchasing a property in Spain, to ascertain this. The rateable value is the minimum value accepted by the Spanish tax authorities for tax purposes. A property can have a rateable value higher than its market value. Rateable value is obtained by multiplying a coefficient (set by the authorities) by the cadastral value.

Wealth Tax is charged on the rateable value rather than market value. The outstanding mortgage can be deducted from the rateable value of the property. The improvement works will not be deducted for wealth tax purposes but may be deducted for CGT purposes on the sale of the property.

Due to the fact that the rateable value is in excess of €2 million Lee has to make a Wealth Tax Declaration at the Spanish tax authorities even if there is no Wealth Tax due.

Lee will have to comply with the notification, file the outstanding returns and pay any Wealth Tax due plus the potential surcharges for late payment which can range from 5% to 20% plus interest.

November 2018

Álvaro Aznar Azcárate

Solicitor and Spanish Abogado

Sykes Anderson Perry Limited