How can we reduce the Wealth Tax bill?
By Armin Gutschick y Anja Sämann-Gutschick
Wealth Tax (“Impuesto sobre el Patrimonio”) was abolished in Spain in 2008, but a few years ago it was brought back again at national level, and thus, also in Ibiza. This tax is applied both to residents and non-residents when the value of their belongings in Spain is over & above of 700,000 €. In order to calculate it, the value of the taxpayer’s personal property and real estate are calculated, and the corresponding tax rate is applied to the total amount. This tax is only applicable to the property of individuals and does not affect companies or businesses.
You must be aware of the fact that in Ibiza there are two laws that regulate Wealth Tax: on the one hand, the state-wide legislation, and on the other, the Legislative Decree that was approved by the Balearic Government in 2014. Some time ago, and in order to comply with a resolution from the European Court of Justice, Spain had to change its legislation in order to apply the same tax rules to residents and non-residents. This means that non-residents with real estate in Ibiza have the right to apply the tax scale approved by the Balearic Islands Autonomous Community (for example when it comes to Inheritance and Donations Tax). However, given that the Wealth Tax rates have been considerably increased in the Balearics, it will be more beneficial to non-residents to calculate theirs following the national rates.
The following example illustrates this: according to Balearic regulations, a non-resident whose patrimony is worth 3 million euros will pay (after discounting the first 700,000 € which are exempt of tax) about 29,000 €. However, if the same person calculates the tax following Spanish rates, s/he will only pay 21,000 €. Therefore, s/he can save 8,000 € by applying the national measuring rates. Non-residents must present their 2018 Wealth Tax declaration by 30th June 2019.
There are various ways of avoiding or at least reducing your Wealth Tax bill. One of them is to buy real estate through a company instead of buying it in the name of an individual person. However, it will be necessary to carry out an in-depth study of the fiscal situation in each particular case, since, while it is true that companies do not pay Wealth Tax, its partners or shareholders are not necessarily exempt from this obligation. As partners and legal persons, they are attributed with the value of the goods they bring to the company. In spite of this, buying a property through a company may be advantageous, although setting up and running said company will involve additional costs.
Another option would be to put the property in the name of various owners, so that you can benefit from sum of the amounts that each owner is exempt from paying tax on. A similar concept would lead to the creation of an usufruct lease, since this lowers the value of a property. In any case, a lawyer should be hired in order to ensure the reasonable and convenient management of these property sales.
Finally, there is the option of getting a loan out with a mortgage on the property, in order to reduce its taxable value. A bank loan, as well as lowering the value of the property, can be deducted when calculating the tax. This alternative is especially interesting to those owners who have a lot of property in Ibiza. In the best-case scenario, the tax bill could be reduced to such a point that the savings would compensate the cost of the loan. Just like with the previous options, this option will also need to be analysed in each particular case in order to evaluate costs vs benefits. •