MADRID – In Spain, the place where you live determines how much tax you pay on your assets or an inheritance. These are taxes the amount of which can be determined by the autonomous communities. The differences are very big.
For example, someone with a fortune of €15 million who lives in Andalucia does not pay tax. Someone with the same assets living in the Valencia region pays more than €400,000. This is evident from an analysis of the differences from the Register of Tax Advisors (REAF). The focus was on three taxes: wealth tax, inheritance and gift tax and the temporary solidarity tax for large assets.
After analysing the problems of differing regulations, they propose reforms so as not to disadvantage certain citizens compared to others.
According to the national standard, the wealth tax taxes wealth, specifically the value of individuals’ assets from €700,000. However, because this has been transferred to the autonomous communities, they can change the tax-free amount, tax rate, deductions and discounts.
REAF calculates, as mentioned in the example cited above, that a taxpayer with a capital of €15 million would pay no tax in 2023 in Andalucia, Extremadura and the Community of Madrid (with a 100% discount), while in the Valencian Community would pay €401,234. This situation is somewhat alleviated by the application of the solidarity tax to large assets.
Discounts and subsidies
Galicia also has a discount, but of 50% on capital (which would result in a payment of €136,885). In addition, the governments of the Region of Murcia and Cantabria have also announced that they will subsidise wealth taxes 100%.
REAF economists believe that the transfer of regulatory power to the areas in wealth taxation and the use made of it lead to very large disparities in the taxation of wealth between communities. “The point is not to compete downwards fiscally, but to ensure that taxes at least do not penalise the fact that certain taxpayers can live here or there,” they say.
What can be changed in wealth taxes to prevent the unequal taxation of wealth by communities?
REAF recommends “the abolition of the wealth tax (or at least preventing autonomous tax authorities from regulating it)”.
If one were to choose to keep the tax, they would see some necessary changes. First of all, the tax base and tax-free rate should be standardised in all areas. Also, the regulatory power of the autonomous communities with regard to rates, deductions and discounts should be limited, but within certain limits to avoid major differences.
Precisely to eliminate these inequalities, the government has temporarily introduced the solidarity tax on large wealth as a supplement to the wealth tax for individuals with more than €3 million, eliminating the reductions of some communities. It remains to be seen whether this tax will become permanent or disappear after 2024.
Another tax that taxes wealth is that on inheritances and gifts. REAF emphasises that children under the age of 21 pay virtually no inheritance tax in any community. And that only if the person who inherits is the spouse, descendant or ancestor (over 21 years old), “little is paid” in the following areas;
- Balearic Islands
- Canary Islands
- Castile and León
- Community of Madrid
- Region of Murcia
- La Rioja
- Valencian Community
- Basque Country
In the case of the gift tax for spouses, descendants and ancestors, the communities that “virtually exempt taxpayers from payment”, according to REAF, are Andalucia, the Canary Islands, Cantabria, Castile and León, the Community of Madrid, the Region of Murcia, La Rioja and the Valencian Community.
Precisely in order not to conflict with the principle of fairness or not to punish effort and thrift, REAF economists advocate reforming these taxes and “establishing two tax rates, a relatively low rate for close relatives and a higher rate for more distant relatives” at the general level.
“Determining minimum and maximum margins within which the autonomous communities can develop their regulatory capacity,” they add. Click here for a clear table of the differences in wealth taxes in the autonomous communities compiled by Newtral.