Plenty of people believe that in their region "there is no wealth tax" and that they therefore have nothing to file. That sentence mixes up two different things: not paying and not declaring. The obligation to file Modelo 714, the Spanish wealth tax return, has two independent doors, and the second one opens even when the tax comes out at zero. Whoever ignores it piles up years of unfiled returns without having failed to pay a single euro.
The two doors of article 37
Article 37 of Ley 19/1991, the Wealth Tax Act, requires a return from anyone in either of these two situations:
| Door | When it opens | Effect |
|---|---|---|
| First: the tax | When the tax due, after applying whatever deductions and reliefs apply, comes out payable | You file and you pay |
| Second: the value of the assets | When, without the above, the value of the assets and rights exceeds 2,000,000 euros | You file even though there is nothing to pay |
They are alternatives, not cumulative conditions. One is enough. And the second is the one breached without anyone meaning to, because a person living in a region with a relief sees the bill at zero and assumes that is the end of it.
How the two million are counted
For this second door you count all assets and rights, exempt or not, valued under the tax's own rules and without subtracting the charges and encumbrances that reduce their value or the taxpayer's personal debts. In other words, this is not net wealth but gross wealth, and it leaves nothing out: not the main home, not the pension plans, not the exempt shares in the family business.
The difference between the two ways of counting is huge. It is worth seeing it in an ordinary case:
| Item | Value | Does it count towards the 2,000,000? |
|---|---|---|
| Main home | 420,000 | Yes, in full (the 300,000 euro exemption does not take it out) |
| Outstanding mortgage on the home | −180,000 | No, debts are not subtracted |
| Shares in the family company (exempt) | 1,150,000 | Yes |
| Pension plan (exempt) | 210,000 | Yes |
| Accounts and funds | 260,000 | Yes |
| Inherited flat in the home village | 95,000 | Yes |
| Total counted | 2,135,000 | Obliged to file |
This taxpayer has taxable net wealth of little more than half a million, a bill that is probably zero after the tax-free allowance and the relief granted by the region, and yet has to file Modelo 714. Failing to do so is an offence of not filing on time a return that causes no financial loss to the Treasury: the one in article 198 of the Ley General Tributaria, Spain's General Tax Act.
Why this is breached so often where the tax is relieved
Regional reliefs make the bill disappear; they do not remove the formal obligation. And since the state solidarity tax on large fortunes came into being, several regions, Murcia, La Rioja and Madrid among them, have framed their relief as transitional, so that it applies while the state tax remains in force and ceases to have effect when it no longer does. The practical consequence is twofold: the regional tax can reappear if the state rules change, and the taxpayer who has spent years not filing in the belief of being exempt suddenly finds a live obligation and past years left undeclared.
A relief (bonificación) works on the tax due: the taxable event has occurred, the return is filed and the result is zero. An exemption works on the asset: it leaves the base. Mixing them up leads people not to file, and not filing is the one thing the law is certain to penalise here, precisely because the tax was zero already.
Who is liable: residents and non-residents
Tax residents in Spain are taxed on a personal basis: on all their wealth, wherever it is, regardless of where the assets are located or where the rights can be exercised. Non-residents are taxed on a territorial basis: only on the assets and rights they hold that are located, can be exercised or must be performed in Spanish territory. Both groups have the two doors of article 37; what changes is what goes into the count.
Someone who opts into the special regime for workers posted to Spain, the so-called Beckham regime, remains an IRPF (Spanish income tax) taxpayer, although taxed under the non-resident rules. For wealth tax the law settles it expressly: article 5.Two of Law 19/1991 says that people under the article 93 regime are taxed on a territorial basis, that is, only on what they hold in Spain. It is one of the checks we always run in Beckham regime files, because in the year the regime ends worldwide liability comes back, with everything held abroad.
Shared wealth: each person declares their own
Wealth tax is individual, and assets are attributed to each taxpayer according to the rules on legal ownership that apply in each case and according to the evidence provided or discovered by the tax authorities. Assets held in common by a married couple are attributed half to each spouse, unless a different share can be shown. That has two effects which change the outcome of the two-million test:
- The threshold belongs to each person, not to the couple. Community property (gananciales, the default Spanish regime in which what is acquired during the marriage belongs to both) worth 3,400,000 euros is split into 1,700,000 euros each, and neither spouse reaches the threshold that way. If one of them also has separate property worth 400,000 euros, that spouse is obliged to file and the other is not.
- The burden of proof lies with whoever claims it. Declaring by halves an asset registered in one name only requires being able to prove co-ownership. Conversely, claiming the whole of a community asset in order to keep the other spouse below the threshold will not stand up if the couple's property regime is gananciales.
With minor children there is an extra rule: assets they own are included in the return of whoever holds parental authority, not in a return of the child's own. And where a couple has separate property but joint accounts, ownership is not decided by who signed the bank's account form but by where the money came from, which is exactly what usually has to be pieced together when a formal request arrives.
Deadline, method and late years
Modelo 714 is filed during the income tax campaign, within the same deadline as the IRPF return, and must be filed online. Anyone filing a wealth tax return is also required to file their IRPF return electronically that year. The tax accrues on 31 December, so what you declare in the spring is the snapshot of the previous 31 December.
If you discover that you should have filed and did not, the route is a late return filed without a prior request from the tax office. When there is nothing to pay, the article 27 surcharge (the recargo, charged on returns filed late without being asked) does not arise, since it is calculated on the amount payable and here there is none. There may, however, be a penalty for filing out of time, halved precisely because the return was filed without anyone asking for it. The difference between moving first and waiting is explained in what counts as a prior request and in surcharge, interest and penalty.
An obligation checked every year, not once
The threshold is not a permanent label. You can cross it and drop back below it with a rise in a portfolio, an inheritance, the sale of a company or a simple update of a cadastral value. Someone who checked five years ago, found they were below it and filed the matter away may have been obliged for two years without knowing. The review takes an afternoon in January, once the 31 December balances are closed and before the campaign begins.
What your wealth tax return reveals about you
Modelo 714 is not only a tax. It is the most complete inventory the tax authorities receive from any taxpayer. Filing it badly, or not filing it, has effects that go beyond the bill:
- It is cross-checked against Modelo 720. Assets abroad declared in one must appear in the other. An account that shows up in the 720 (Spain's information return on assets held abroad) and not in the 714 is an inconsistency that flags itself; the guide to Modelo 720 explains the other side.
- It is cross-checked against the income tax return. Large wealth alongside minimal declared income raises questions about undeclared income.
- It is cross-checked against the future. The value declared year after year is the thread used to trace the origin of an asset when an inheritance or gift comes along, or when you have to show where the money for a purchase came from.
Before deciding it does not apply to you
The check is short and should be done every year, not just once:
- Value all your assets under the rules of the tax, set out in how each asset is valued, without subtracting debts and without removing the exempt ones.
- If the total exceeds 2,000,000 euros, you must file, whether or not anything is payable.
- If it does not, work out the tax with the tax-free allowance and the rules of your region in force on 31 December. If there is something to pay, you must file as well.
- Check whether you also fall within the solidarity tax, which has its own threshold and its own form.
If the result leaves you on the borderline, or if you have gone years without filing and want to know what you are exposed to before making a move, send us the details through the wealth tax form. We look at it with your real valuations and tell you which years have to be filed and in what order, warning you of the risks along the way. We do not guarantee that the tax authorities will share our reading of each item, but we do make sure you know your exposure before a single paper is moved.