The tax regime in Spain allows the Autonomous Communities to adjust some rules and tax rates, for example income and wealth tax rates, and also rates, allowances and reductions for succession and gift tax. As a result there are substantial tax differences between regions, making some areas much more beneficial, tax wise, to live in than others.

At a meeting of regional Prime Ministers with Spanish Prime Minister Mariano Rajoy in January this year, Andalucía requested a tax harmonisation of the Spanish tax system (especially for succession and gift tax and wealth tax) to avoid unfair competition and tax dumping between the different Spanish regions.

Other regions such as Comunidad Valenciana, Murcia, Castilla-La Mancha, Castilla y León, Galicia, Extremadura, Cantabria and Aragón supported the petition requested by Andalucía, suggesting that a maximum and a minimum rate applicable for succession and gift tax and wealth tax should be established, to reduce the differences between the Spanish regions. On the contrary, Madrid and Islas Baleares rejected this proposal.

After this meeting, the central and regional Spanish governments appointed a tax experts committee to look at the issue. This committee has been working since February 2017 on some recommendations to amend the Spanish regional funding system.

The final report with their conclusions should be available by August 2017, but in the meantime some information has been released showing part of the guidelines that could be suggested by the committee.

The most important aspects of their discussions were wealth tax, succession and gift tax and their future harmonisation. The recommendations made by the committee are summarised below:

Wealth tax

  • A state law should establish minimum and maximum wealth tax rates applicable to all the regions. Then each Spanish region can decide the applicable rates within those brackets.
  • The possibility to apply a 100% allowance on the final wealth tax bill for all regions so that no wealth tax is payable at all (as currently applies in Madrid).
  • While some experts have suggested the abolition of wealth tax, this idea has not garnered enough support, so it seems unlikely that wealth tax will disappear in the coming years in Spain.

Succession and gift tax

  • A state law should establish minimum and maximum succession and gift tax rates applicable to all the regions. Then each Spanish region can decide the applicable rates within those brackets.
  • Tax rates of around 5% for close relatives (I.e. Groups I & II beneficiaries – ascendants, descendants and spouses).
  • No option to apply an allowance so that this tax is not payable at all.
  • These suggestions will benefit those individuals resident in the regions with the highest taxes (e.g. Andalucía) but they will be detrimental for those living in regions with very low succession tax rates, like Madrid.

Once the final report has been published, expected to be in August 2017, all regional and central governments will discuss and decide the way forward prior to the possible implementation of new laws.

Note that the committee’s findings are simply suggestions; they are not binding. For example, a previous tax experts committee was appointed in 2014 to help the Spanish government with the major 2015 tax reform. The report of this committee (Informe Lagares) suggested, amongst other recommendations, that wealth tax should be abolished. However, the proposal has not been followed and wealth tax remains applicable in Spain.

How will this impact you?

If committee’s guidelines are followed, it is likely that some taxpayers, especially those who live in regions with high succession tax rates (such as Andalucía) will see their succession tax bills reduced at some point.

We do not know exactly what affect there may be on wealth tax at this time.

We will have to wait until they release their final report and how the different regional governments will decide to proceed in this regard. We will keep you informed when we have more news.

In the meantime, please don’t hesitate to contact us if would like advice on, or a review of, your tax and estate planning.

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; an individual is advised to seek personalised advice.