And that MIGHT hit non resident Spanish taxpayers the hardest

The Spanish government is dusting off the wealth tax

Spain is bringing in legislation reintroducing the wealth tax which was only abolished in 2008, in order to further reduce its budget deficit which is forecast to be around 6% of GDP in 2011.  This annual tax, levied on assets like cash, property and investments rather than income, used to bring in over €1 billion a year and was paid mainly by the very well-off because deductions and allowances were enough for ordinary taxpayers to escape with paying nothing.

It will come in 2012 relating to assets held at the end of 2011.  The exact details are not known yet because the legislation has not been passed.

The old tax, called Patrimonio in Spanish, was calculated by totalling the taxpayers assets, deducting allowances and applying a % tax rate to the total.  The allowance was €108,182 per person and a married couple claimed two allowances.  In addition the first €150,253 of the value of the main residential property was exempt (€300,506 in the case of a married couple who owned their principal residence jointly).  As you can see, not many people would have to pay this tax but if they did the rates rose as the total assets did:

 

Note that the rates are appled in bands so that anyone with assets (after allowances) over €167,129 would pay 0.2% on the first €167,129 and 0.3% on the excess up to €334,247 and so on.  There was also some variation in the allowances depending on which autonomous community you lived in as the tax was collected by the communities rather than central government.

Why non resident taxpayers have most to fear

Foreign holiday home owners currently (should) pay non resident income tax on their property in Spain.  This is declared on the Spanish Tax Form 210 which you can find out more about by clicking the link.  Up until 2008 non residents also had to pay wealth tax (declared using modelo 214) in addition to the income tax which could double or treble their liability to Spanish tax.  The main problem was that non residents didn't receive any allowances to reduce their liability so had to pay tax from the first € of assets they owned.  They got neither the individual allowance or the principal residence deduction on property and so a €450,000 villa would cost €1,414 annually in addition to the Form 210 tax.

Will wealth tax be the same this time?

No definite announcement has been made but initial indications are that the wealth tax will not be as punitive this time.  There is said to be  a big threshold (700,000€) that make it payable mainly by the very rich only. In addition there is a 300,000€ allowance versus your own home. The rate will be 0,2-0,25%.  But we will wait and see for the official legislation.

If the tax came back in I suspect that non residents would in fact get the same annual allowance as residents because the EU would find it discriminatory otherwise (they have already made Spain treat non residents more fairly on non resident income tax on rental income and capital gains tax).  However non residents would not get the principal residents' relief because by definition their holiday home is not their main residence.