expat network

Watch out for wealth taxes if you are considering a move, perhaps at retirement, to the EU.

Wealth taxes

Wealth taxes are applied widely in the EU – an annual tax on the value of national or worldwide capital assets. In some countries it applies only to a restricted group of assets, commonly property, whilst in others the scope is much wider.

There is speculation that an incoming Labour government in the UK might introduce a similar tax. If this were to happen, the UK wealthy might be well advised to revise their asset mix and potentially shift away from property.

In all EU countries wealth taxes are paid annually, usually from income, and presenting a particular burden for those who are ‘asset-rich, income-poor’. Three countries with forms of wealth tax are France, Spain and Portugal.

AssetsW/wide Real EstateMost Capital AssetsLocal Real Estate
Single Married1,300,000 (800,000)* 1,300,000 (800,000)*700,000 (1,000,000)** 1,400,000 (2,000,000)**600,000 1,200,000
Tax Rates Range0.50% (500,000) to 1.5% (over 10m)0.20% (167,129) to 3.5% (over 10.7m)0.70% (400,000/800,000) to 1.50% (over 2m/4m)

*You are only liable to wealth tax in France if the value of your chargeable assets exceed €1.3m, but once exceeded, wealth tax is payable from €800,000 upwards. The tax is based on the wealth of the household.

**Spain has a €700,000 personal exemption and a separate €300,000 main home exemption.

“The scope of wealth tax in France was severely restricted in 2018, with it now only applying to property,” said Jason Porter, director of specialist expat financial advisory firm Blevins Franks. “Residents are liable to wealth tax on their worldwide real estate, while non-residents are only liable to wealth tax on their French real estate.”

The UK/France double tax treaty provides substantial relief from French wealth tax for UK nationals. For the first five French tax years after becoming a resident of France, the wealth tax will only be charged on real estate assets in France.

Over the years Spanish wealth tax has been on and off, depending upon the state of the Spanish economy, but in 2021 the Spanish general budget fully reintroduced wealth tax.

“Like France, Spanish wealth tax is payable by residents on their worldwide assets, and non-residents on their Spanish assets,” said Jason Porter. “But unlike France, the liability is not based on the household, but the individual, with joint asset values divided 50-50, and is chargeable on the value of most capital assets, rather than just real estate.”

Certain assets are exempt, including the first €300,000 of value in the main home in Spain.

Spain has 17 autonomous regions, each able to set its own wealth tax rules, leading to significant differences in rates. Some regions like Madrid and more recently Andalucia provide a 100% exemption. The potential for other regions following this initiative led the national government to introduce a new state Solidarity Tax on Large Fortunes, which the regions cannot alter or exempt.

The exemptions mirror wealth tax, with the next €3 million at 0%, so the first tax charge at 1.7% only kicks in at wealth over €4million (€8milion for a married couple). To avoid double taxation, taxpayers can deduct the wealth tax liability already paid from any Solidarity Tax liability.

Portugal began charging a form of wealth tax in 2017, based solely on the value of Portuguese real estate with a higher registered value, as an addition to their version of council tax (IMI).  

“Everyone is entitled to a deduction of €600,000, so couples who are both the registered owners of a property have a €1.2 million exemption,” said Jason Porter. “Beyond this value, tax is charged at 0.7%, then 1% when the taxable value exceeds €1 million (or €2million for a couple), then 1.5% over these amounts.”

There is some degree of tax break in France and Spain (but not Portugal), for those people you might describe as ‘asset-rich, income-poor’, where the sum of a number of taxes, including wealth tax cannot exceed a certain percentage of the individual or couples’ income.

In France it is the combined French income tax, wealth tax and social charges cannot exceed 75% of their total income.  If it does, the taxpayer can claim a refund of the excess taxes paid. In Spain, the cumulative wealth and income taxes cannot exceed 60% of the general and savings net taxable base income, subject to paying a minimum of 20% of the full wealth tax liability.

“In both states it is beneficial to invest in assets or products which limit taxable income,” said Jason Porter. “With the correct advice, and certain tax efficient investments and financial products, it is possible to manage the situation and minimise one’s exposure to wealth tax. But a concentration in real estate is likely to maximise one’s liability.

“If the UK were to follow the same path as some EU member states and introduce a wealth tax, then it might well require the wealthy in the UK to revise their asset mix and potentially shift away from property, towards more wealth tax-beneficial investments.”