Wealth tax - capped by income tax payments?

Information and questions about the Law in Spain and Andalucia.
booms81
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Wealth tax - capped by income tax payments?

Postby booms81 » Fri Oct 13, 2017 12:21 pm

Hi all,

Thinking of moving to Spain and trying to get my head around exactly how the Wealth Tax works. I've read around it, I think I understand the detail in terms of the exemptions, exemptions for housing, what's included and what isn't, how form 720 works, etc.

What I don't understand is this line that I've seen on a few tax advice websites:

"Your cumulative wealth and income taxes cannot exceed 60% of the ‘general and savings taxable income bases’ of residents (but still excluding from savings income any gains on assets held for more than one year, and the associated tax rates). This is subject to paying a minimum of 20% of the full wealth tax calculation."

What exactly does this mean in practice? It sounds like you calculate the wealth tax payment, but that your total wealth and income tax is capped by something called the 'general and savings taxable income bases', but also that the wealth tax is floored at 20% of the calculated charge.

Could someone give me an example of this? What exactly does 'general and savings taxable income bases' mean? I think this is pretty much the taxable income you have for the year, but want to check.

Thanks!

El Cid
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Re: Wealth tax - capped by income tax payments?

Postby El Cid » Sat Oct 14, 2017 11:49 am

It's worth pointing out that wealth tax in Spain only affects seriously wealthy people. In fact, only 14000 people in Andalucia end up paying it.

It's not a tax that I have had experience of (sadly!), but having had a quick browse of the situation, here is my best guess at an example.

Income, including savings/investment income €120k
Income Tax payable €45k

Wealth tax cap 60% of 120k = 72K

Total assets liable for wealth tax €7.3 million
Less joint allowances €2 million

Liable for tax. €5.3 million

Wealth tax payable €85k

But capped at €72k so only €72k wealth tax due.

However, this cap only applies to assets which are NOT income earning, so you pay the full tax on your Ferraris and art collection. The logic behind this is that on earning assets, you will already have paid income tax on the profit so they are trying to reduce the risk of you paying tax twice on the same asset. In reality, someone with that many assets would probably have an income much greater than €120k so the cap would be a lot higher.

Hope this helps, but I must stress that it is nothing more than an informed guess.

Sid

booms81
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Re: Wealth tax - capped by income tax payments?

Postby booms81 » Sun Oct 15, 2017 7:27 pm

Hi El Cid,

Thanks very very much for the response.

A quick check on your maths, I think the cap you calculated on 60% tax base applies to the total of both the income tax and Patrimonio, together

So in this case the total bill is just 72k. Am I right?

Also - where did you get the information on which assets are considered income earning? Is there a listing anywhere of what's covered and what isn't?

Manchesteral
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Re: Wealth tax - capped by income tax payments?

Postby Manchesteral » Wed Oct 18, 2017 10:45 am

El Cid wrote:It's worth pointing out that wealth tax in Spain only affects seriously wealthy people. In fact, only 14000 people in Andalucia end up paying it.

It's not a tax that I have had experience of (sadly!), but having had a quick browse of the situation, here is my best guess at an example.

Income, including savings/investment income €120k
Income Tax payable €45k

Wealth tax cap 60% of 120k = 72K

Total assets liable for wealth tax €7.3 million
Less joint allowances €2 million

Liable for tax. €5.3 million

Wealth tax payable €85

But capped at €72k so only €72k wealth tax due.

However, this cap only applies to assets which are NOT income earning, so you pay the full tax on your Ferraris and art collection. The logic behind this is that on earning assets, you will already have paid income tax on the profit so they are trying to reduce the risk of you paying tax twice on the same asset. In reality, someone with that many assets would probably have an income much greater than €120k so the cap would be a lot higher.

Hope this helps, but I must stress that it is nothing more than an informed guess.

Sid

This is exactly the reason why I don't want to be tax resident here, too much to mess with (from my point of view) I have a will in place and my assets will be dispersed according to my wishes and I don't want to rock the boat.
As far as the authorities her are concerned I'm tax resident in the U K but a frequent visitor here.
Of course I understand the situation is different if one is tax resident here !

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peteroldracer
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Re: Wealth tax - capped by income tax payments?

Postby peteroldracer » Wed Oct 18, 2017 12:13 pm

"As far as the authorities her are concerned I'm tax resident in the U K but a frequent visitor here."
Be aware that once Brexit is active there will be much more recording of entry and exit from EU countries, so overstaying the 183 days will be easily identified.
If you are worried about wealth tax the authorities will know about you and could make you a priority target. My ex-brother in law, filthy rich, had a tax officer rent a house in his village so he could monitor his activities.....they only got his wife for using the company Range Rover for school runs but it made him decide to operate from Geneva!
The saddest people are those that cannot laugh at themselves

booms81
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Location: London

Re: Wealth tax - capped by income tax payments?

Postby booms81 » Mon Oct 23, 2017 10:54 am

Manchesteral wrote:
El Cid wrote:It's worth pointing out that wealth tax in Spain only affects seriously wealthy people. In fact, only 14000 people in Andalucia end up paying it.

It's not a tax that I have had experience of (sadly!), but having had a quick browse of the situation, here is my best guess at an example.

Income, including savings/investment income €120k
Income Tax payable €45k

Wealth tax cap 60% of 120k = 72K

Total assets liable for wealth tax €7.3 million
Less joint allowances €2 million

Liable for tax. €5.3 million

Wealth tax payable €85

But capped at €72k so only €72k wealth tax due.

However, this cap only applies to assets which are NOT income earning, so you pay the full tax on your Ferraris and art collection. The logic behind this is that on earning assets, you will already have paid income tax on the profit so they are trying to reduce the risk of you paying tax twice on the same asset. In reality, someone with that many assets would probably have an income much greater than €120k so the cap would be a lot higher.

Hope this helps, but I must stress that it is nothing more than an informed guess.

Sid

This is exactly the reason why I don't want to be tax resident here, too much to mess with (from my point of view) I have a will in place and my assets will be dispersed according to my wishes and I don't want to rock the boat.
As far as the authorities her are concerned I'm tax resident in the U K but a frequent visitor here.
Of course I understand the situation is different if one is tax resident here !


Thanks for this Manchesteral - how do you actually manage this in practice? If bouncing back and forward between the UK made my life easier for tax I'd be happy enough to do that. Have you actually done things like declare that you're staying for longer than 3 months? Do you own or rent property?


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