Non-resident owners of property in Mallorca are usually aware of non-resident income tax and unaware that, above certain thresholds, a second annual obligation applies to the ownership of assets as at 31 December. The position has changed materially in recent years for three reasons: the extension of the charge to shares in companies holding Spanish real estate, the increase in the regional exempt allowance, and the coexistence of the tax with the State levy on large fortunes.
What falls within the charge
A non-resident is taxed solely on assets and rights located in Spanish territory, or exercisable or to be performed there. The property on the island falls within the charge, as do balances held with Spanish institutions in connection with it and any other assets situated in Spain.
The amendment made by Ley 38/2022 widened that perimeter in a way that matters for international clients: securities representing an interest in the equity of any entity, wherever resident, are deemed situated in Spanish territory where at least 50 per cent of that entity's assets consist, directly or indirectly, of real estate located in Spain. In practice, interposing a foreign company no longer removes the charge by itself, and holding structures designed under the previous regime call for review.
The Balearic three million allowance and the right to apply regional rules
State law sets a default exempt allowance of 700,000 euros, alongside the exemption of a main home up to 300,000 euros. The autonomous communities may legislate on that allowance, and the Balearic Islands raised it to 3,000,000 euros through Ley 12/2023, of 29 December, the regional budget act for 2024, with effect from 1 January 2024.
The fourth additional provision of Ley 19/1991 entitles non-resident taxpayers to apply the rules of the autonomous community in which the greater value of the assets and rights subject to the tax is located. For a person whose only Spanish assets are in Mallorca, that community is the Balearic Islands, so the applicable allowance may be three million rather than the State figure of seven hundred thousand. The difference is rarely trivial, and claiming it requires the right to be exercised in the return itself, a point worth documenting carefully.
The applicable tariff is likewise the regional one, progressive and with a structure of its own, which should be checked for each year since it has been amended more than once.
The temporary solidarity tax on large fortunes
Above a threshold of three million euros of net assets, the State levy created by Ley 38/2022 comes into play, extended by Real Decreto-ley 8/2023 until wealth taxation is reviewed as part of the reform of regional financing. Its mechanism allows the wealth tax already paid to be credited, so that it operates as a State-level floor which largely neutralises the more favourable regional measures for larger estates.
The levy also reaches taxpayers with limited liability, and the 700,000 euro allowance applies to them as well following the amendment made by that same Real Decreto-ley 8/2023.
Valuing the property and deducting debts
Real estate is brought in at the higher of three values: the cadastral value, the value assessed by the authorities for the purposes of other taxes, and the price, consideration or acquisition value. How that rule interacts with the reference value introduced for transfer taxation is not settled, and it deserves case-by-case analysis, particularly for recent acquisitions.
On the liabilities side the restriction is strict, and it explains a large share of the assessments raised in this area: a taxpayer with limited liability may deduct only the charges and encumbrances affecting assets located in Spain and debts representing capital invested in them. A mortgage granted over the Mallorcan villa to finance its purchase is deductible; a personal loan taken out in the country of residence and applied to other purposes is not, even though it forms part of the owner's overall net worth.
When a return is due even though no tax is payable
A return must be filed where tax is payable and also, even where the liability is nil, where the value of the assets and rights exceeds 2,000,000 euros. That situation is common precisely because of the Balearic allowance: high-value properties producing no liability at all, yet still carrying a filing obligation. The return is made on modelo 714 within the annual income tax filing season.
Practical implications and conclusion
Three reviews are advisable. First, the holding structure, since foreign companies with Spanish real estate assets no longer sit outside the charge. Second, the effective exercise of the right to apply the Balearic rules, which does not operate automatically. Third, the composition of the liabilities declared, which is where adjustments most often arise on audit.
This tax should also be coordinated with succession planning. The value declared each year for wealth tax purposes is a record the authorities can compare against the position taken on death, and inconsistencies between the two files are difficult to justify after the event.
Lex·on reviews the wealth tax position of non-resident clients with assets in the islands, including corporate holding structures, from Palma de Mallorca and Manacor. If you hold significant assets in the Balearics, the position is best checked before the year end.
Source: Ley 19/1991 on Wealth Tax; Ley 38/2022, of 27 December; and Ley 12/2023, the Balearic regional budget act for 2024.
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This article is for information purposes only and reflects the administrative position in force on the date of publication. It does not constitute legal or tax advice and does not replace an individual analysis of each case.