The Tax Benefits Of Living In Andalucía
We may be biased, but Andalucía has always been an appealing place to live. The coastline, inland villages, history, culture, food, weather and lifestyle all combine to make it a dream destination. And now, the advantages of residence also include tax benefits.
Written by Jason Porter of Blevins Franks
We often meet people who would love to live in Spain full-time but limit their time here to avoid meeting the tax residence criteria. But Spanish taxation can be lower than you expect, particularly on investment capital and wealth, as much depends on how you hold your assets. The situation improved further over recent years, with the Andalucian government taking steps to make the region very competitive from a tax point of view.
No regional wealth tax
Spain’s annual wealth tax, applied on worldwide assets, impacts wealthier individuals and is one reason some choose not to live here.
But last year Andalucía effectively abolished wealth tax for its local taxpayers. With effect from the 2022 financial year it applies a 100% relief. Although those with wealth above €2 million remain obliged to file the tax return, the 100% reduction means they have zero liability. The only other region to do this is Madrid.
Spain has since introduced the ‘solidarity tax on large fortunes’ (wealth tax by another name) which is controlled by the state not regions. However, it is a temporary tax, currently only scheduled to apply for 2022 and 2023, and thanks to the high allowances it only really affects those with wealth over €4 million.
Reduced income tax rates
While tax rates on savings income are set solely by the state, tax on general income is split between the state and regional government.
Andalucía has reduced its local income tax rate over recent years, making the local scale rates of income tax competitive compared to other Spanish regions.
The beneficial inheritance tax regime
Spanish succession and gift tax is applied on each beneficiary and falls due when either the beneficiary is resident in Spain, or the asset being gifted or inherited is a Spanish asset. Beneficiaries are grouped according to their kinship with the donor, with no blanket exception for spouses. Tax rates and allowances are determined by the state each year, but the regions can make them more beneficial for local residents – which is exactly what Andalucía has done.
The top succession tax rate in Andalucía, for example, is 26% (for amounts over €800,000) which compares favourably to the state’s top rate of 34%.
This tax regime also applies multipliers, based on the beneficiary’s pre-existing wealth and degree of kinship, which sometimes significantly increases the tax liability. Andalucía, however, only adds multipliers based on kinship – spouses, descendants and ascendants are excluded and the multipliers are favourable for everyone else.
Even better than this, Andalucía provides high personal reductions. For inheritances (not gifts), descendants, ascendants and spouses receive up to €1 million tax free (as opposed to the state’s €15,957), as well as a 99% tax relief. Siblings, cousins, nieces/nephews, in-laws, stepchildren etc receive a reduction of €10,000.
Additionally, the main home is reduced by 99% for inheritances received by close family, with no maximum cap. This is provided the beneficiary is a spouse/civil partner, ascendant, descendant, or other relative over 65 who lived with the deceased the previous two years, and they do not sell the property for three years.
Digital nomad visa and its beneficial tax regime
This is not an Andalucía benefit as such, it applies to all of Spain, but will appeal if you can work remotely in Spain. The new Digital Nomad Visa has made it possible for non-EU nationals to live and work in Spain if they are able to work remotely. There are various conditions so establish if you are eligible.
If you are, you may then be able to apply for the special tax regime commonly called the ‘Beckham Law’. Provided you fulfil a series of requirements, you could opt to be taxed under the non-resident tax rules for up to six years, which could considerably reduce your overall tax liabilities.
Talk to Blevins Franks for personalised, specialist advice to establish exactly how much tax you could save by being resident in Andalucía.
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; individuals should seek personalised advice.