Non-residents who own assets in Spain, such as a holiday home, bank accounts or investments, now benefit from stronger tax protection. The Spanish Supreme Court has ruled that non-residents are entitled to the same combined income and wealth tax limit as Spanish tax residents.
Until now, this tax cap applied only to residents. As a result, non-residents often paid more tax in identical situations. The new ruling marks an important shift in Spanish tax policy.
This article explains what the decision means, how the sixty per cent rule works, and what impact it may have on anyone who owns property or other assets in Spain.
What is Spain’s wealth tax?
The Impuesto sobre el Patrimonio is an annual tax on personal wealth above a certain threshold.
For non-residents, the tax applies only to assets located in Spain, such as:
- a holiday home or second residence
- funds held in Spanish bank accounts
- shares or ownership interests in Spanish companies
In addition, individuals may be liable for Spanish income tax through the IRPF (Personal Income Tax). To prevent an excessive overall tax burden, the law provides for a combined limit.
The sixty per cent rule
Spanish law states that the total amount of income tax and wealth tax may not exceed sixty per cent of the taxable income for that year.
If the total exceeds that threshold, a reduction in the wealth tax may be applied. This reduction can amount to up to eighty per cent of the wealth tax due, although at least twenty per cent must always be paid.
Until recently, only Spanish tax residents could benefit from this rule.
Years of unequal treatment for non-residents
Non-residents were excluded from the tax cap because the Spanish Tax Agency argued it was difficult to verify foreign tax returns. As a result, non-residents often paid significantly more than residents in identical circumstances.
Example
Imagine someone earning €40,000 in a year and having to pay a combined total of €32,000 in income tax and wealth tax.
This represents a tax burden of 80 per cent. Under Spanish law, however, the total may not exceed 60 per cent, which in this case would be €24,000.
The difference of €8,000 can potentially be deducted from the wealth tax, provided that at least twenty per cent of that tax remains payable.
The Supreme Court steps in
The Spanish Supreme Court has ruled that the exclusion of non-residents violates European rules on the free movement of capital. Anyone with assets in Spain must be treated equally for tax purposes, regardless of residence.
Crucially, non-residents now have the right to present evidence of their foreign income. The Tax Agency must consider these figures when calculating the tax burden.
This ruling puts an end to a long-standing inequality.
What exactly changes for non-residents?
1. The sixty per cent tax cap now applies to everyone
The total tax burden in Spain may not exceed sixty per cent of income, regardless of where someone lives.
2. Potential tax savings
For individuals with modest income but significant assets in Spain, this rule can lead to a substantial reduction in wealth tax.
3. Possible review of previous tax assessments
In Spain, the general statute of limitations for tax matters is four years. This means that some past assessments may be reviewed if the tax burden exceeded the legal limit at that time.
Whether a refund is possible depends on the specific circumstances of each case.
4. Foreign income must be documented
This can be done through foreign tax returns, tax assessments, payslips or other official income documents.
What does this mean for property owners in Spain?
The ruling is relevant for anyone who owns property or assets in Spain. They now benefit from:
- a fairer tax treatment compared to residents
- a potentially lower annual tax bill
- the possibility of revisiting previous tax assessments
- greater long-term certainty for future investments
A recalculation carried out by a Spanish tax specialist can be particularly useful, especially for those who have paid substantial amounts of wealth tax in the past.
Conclusion
The decision of the Spanish Supreme Court is a significant step for non-residents. The sixty per cent tax cap now applies equally to foreign property owners in Spain.
This may reduce the tax burden and, in some cases, allow for the review of past assessments. Anyone who suspects they may have overpaid should have their case analysed by a professional.
Sources consulted
- Agencia Tributaria (AEAT) – Official information on IRPF, wealth tax and non-residents
- Boletín Oficial del Estado (BOE) – Official Spanish legislation
- EUR-Lex – European regulations on the free movement of capital
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