Property in Andalucía – the perfect tax haven?

Reluctant to move to the Costa del Sol due to wealth tax?

Great news. Thanks to the latest government reforms, that’s no longer an issue – and now could be the ideal time to move into your perfect property in Andalucía’s Costa del Sol.

Known as Impuesto de Patrimonio, for many years, this additional tax – which currently has no equivalent in the UK – has been a major barrier for potential expats.

Paid annually, it applied to both residents and non-residents (who owned Spanish real estate), with worldwide assets above €700,000. And as an extra cost on top of income tax, capital gains and inheritance tax, it’s fair to say, it was an unwelcome burden. One that has deterred many high earners from purchasing a home and moving permanently into the area. But not anymore.

On 19^th September 2022, Juanma Morena – President of the Andalusian government – announced that wealth tax would be abolished in the region with immediate effect.

Regional governments in Spain have the freedom to introduce tax reductions however they see fit.

Previously, the only region in which wealth tax has been cut is Madrid. But from Wednesday 21^st September 2022, Spanish nationals and foreigners who reside in the southern region (or have a second property in Andalucía) – whose worldwide assets fall above the €700,000 threshold – will receive a 100% reduction on wealth tax.

In other words, they no longer have to pay it.

Sound too good to be true?

Why exactly has the government chosen to scrap this lucrative tax?

Well, it turns out it’s not so lucrative after all.

According to Morena, the cancellation of wealth tax won’t have a large financial impact on the region, as it currently only represents 0.6% of its yearly tax revenue.

Until now, he believes it has merely created an ‘obstacle for investment’. And by getting rid of the annual payments, he hopes to create a ‘tax haven’ – therefore encouraging high-earners to become residents in the area. In fact, he predicts the change could motivate around 7000+ high-earning tax contributors to relocate to Andalucía and pay their other taxes in the region.

Interested in a property in Andalucía?

As a leading real estate agent in one of the region’s most coveted municipalities, over the years, we’ve had many discussions with clients who have wished to relocate to Andalucía – but eventually decided against the move due to the impact of Spanish wealth tax. Which is why, the government’s announcement is a hugely positive step.

The abolishment of wealth tax is a real game changer – especially when combined with the other tax advantages associated with living in the region. For example, residents benefit from:

• virtually no inheritance or gift tax for close family members, which can be a particular boon for residents of countries such as the UK (providing matters are properly organised).

• investment income tax rates between 19% – 26%, with the top rate only applying to incomes over €20,000.

• capital gains tax rates of 19% – 26%.

• buy to let residential letting net income taxed at an effective maximum rate of 20%.

Letting income is also only ever calculated after deducting all related expenses, including loan interest. Private pensions are treated as an investment income – which means, in some cases, tax can be as low as 2.5% of the income drawn. And thanks to the full range of international tax treaties, double taxation almost never happens.

In addition, Morena also announced his government plans to deflate income tax rates by 4.3%, as well as completely eradicate water tax.

Without a doubt, this change means that Andalucía now presents real competition for Madrid. After all, who wouldn’t want to move to one of the best areas of Spain – with all the lifestyle benefits it has to offer and now, the added bonus of being a tax haven?

Perhaps this is the encouragement you need to finally make the leap and move permanently to Andalucía? Maybe you settled for a nearby country – such as Portugal – but have always dreamed of a home in the Costa del Sol? Or originally opted for a residence in Madrid?

Whatever your current situation – if you’re interested in a property in Andalucía, and have previously been deterred by wealth tax, now is the time to relocate. And we can help.

We have a comprehensive portfolio of properties for sale in Andalucía, with something to suit all needs and preferences. And thanks to our unparalleled knowledge of the buying process, including the costs and taxes associated with moving into the region, we can assist in finding your ideal home and making your dream of moving to the Costa del Sol a reality.

Simply give us a call on +34 952 939 460 (+44 208 068 7606) to get started. Or if you have any questions about the recent changes to wealth tax – and how they could benefit you – please don’t hesitate to send an email to info@bromleyestatesmarbella.com. We’re always happy to help and will respond to your enquiry as soon as possible.