As Spain ushers in the new tax year, taxpayers are greeted with some notable updates. While there aren’t many sweeping changes, a few key adjustments could significantly impact high-income earners, property owners, and those with investment interests. Here’s an overview of the most relevant tax developments for 2025.
Higher Tax Rates on Large Incomes and Capital Gains
For those with significant income, particularly from savings or capital gains, 2025 brings a further increase in taxes. The top rate for savings income and capital gains tax has been hiked once again, now set at 30% for income above 300.000€. This marks a gradual increase from a rate of 23% just a few years ago.
This will primarily impact individuals with large capital gains, such as those selling a property or business. For example, if you made a capital gain of 500.000€, you could now face a tax liability of approximately 132.000€, up from 114.000€ in 2021, marking an additional 18.000€ in tax.
Tax Filing Obligations: A Small Increase
The threshold for those required to file an income tax declaration has been adjusted. The obligation to file now kicks in when income exceeds 15.876€ for individuals who do not pay tax at source in Spain. However, for those already paying taxes through the Spanish payee system, the limit remains unchanged at 22.000€. Interestingly, the threshold for second-income earners (for example, if you have two jobs, or have changed employers during the year) has increased from 1.500€ to 2.500€. This change could simplify things for many people with supplemental income.
Deductions: Incentives for Eco-Friendly Investments
If you’ve been considering going green, there’s good news: Spain has extended the tax deductions for purchasing electric vehicles and making energy efficiency improvements until 31 December 2025. This move encourages both sustainable living and investment in environmentally friendly technologies.
Changes to Rental Income Deductions
One of the most significant changes this year affects landlords. Though this was effectively introduced last year it will be now when we will notice its effects in the 2024 income tax declaration. Until 2024, the rental income, when renting to individuals as their usual dwelling was subject to a 60% reduction before calculating the tax. From 1 January 2024, this has been substituted by the following series of reductions:
- 90% Reduction: For properties in areas where residential rentals are scarce, provided the rent is reduced by at least 5% compared to the previous year.
- 70% Reduction: For first-time rentals in high-demand areas, where tenants are between the ages of 18-35 or the tenants are public entities or non-profit organizations.
- 60% Reduction: If the property underwent renovations under a government building promotion program.
- 50% Reduction: For long-term rentals of properties rented to individuals as their primary residence. This is the general reduction, and it’s the one that will impact most landlords.
These changes reflect Spain’s ongoing efforts to address the housing shortage and make rental properties more affordable, though whether they will succeed is up for debate.
Changes in VAT and the End of Reduced Rates
In a move that will likely affect household budgets, the temporary reduced VAT rates on electricity and essential goods have ended. Electricity bills, in particular, will see an increase, with the VAT on electricity returning to the standard rate of 21%, up from a reduced 4% rate.
You can read more about this here: https://www.spenceclarke.com/articles/electricity-bills-soar-as-vat-returns-to-21/
Wealth Tax Changes in Baleares
In a significant regional tax shift, Baleares has increased the wealth tax exemption limit to 3.000.000€. This move, effective from 2024, reflects the region’s attempt to align itself with other areas in Spain that are offering tax incentives to attract wealthy individuals and investors, such as Andalucía and Madrid.
Conclusion
While the 2025 tax year in Spain brings only a few major changes, they are likely to have significant consequences for high earners, property owners, and those involved in the rental market. The government’s focus on raising taxes for large incomes, promoting sustainable investments, and addressing the housing crisis through regional and national measures is clear. However, the impact of these changes on Spain’s property market, foreign investment, and overall economic stability remains uncertain. As always, those affected should seek expert advice to navigate the new landscape effectively.
