Spanish Wealth Tax - Who Pays? How Much?

Wealth Tax (Impuesto sobre el Patrimonio (IP)) is a national tax in Spain which has had an up-and-down ride in recent years. It is principally regulated by Law 19/1991. However, its collection is 100% devolved to the Autonomous Communities, which can exercise their own regulatory powers according to Law 22/2009. In Andalusia, control over the IP has been subject to a number of legislative changes but fundamentally, Andalucia has chosen to avoid collecting the tax as an incentive to high net worth individuals to base themselves in the autonomous region rather than in, for example, the capital Madrid.

The obligation to declare the IP was abolished in 2008, but temporarily reinstated in 2011 by Royal Decree-Law 13/2011. Since then, the obligation to file a tax return has been extended by various laws until 2021, when it was established that it would remain in force indefinitely.

Persons obliged to file a tax return

According to Article 37 of the IP Law, taxpayers whose net worth after applying deductions or allowances exceeds €2.000.000 are obliged to file a return for IP.

The IP is levied on the ownership of the net wealth of individuals on 31 December.

Taxpayers can be individuals resident in Spain (personal liability) or individuals with assets in Spain (real liability).

Taxable Base

The taxable base is the value of the taxpayer’s net assets after subtracting from that figure the minimum exemption of €700.000, according to Law 19/1991 and any subsequent amendments such as the deduction of €300.000 for a private residence.

Tax Rates

For 2022 and onwards, the rates of Article 25 of Law 5/2021 are applied.

The rate is progressive and varies from 0.2% to 2.76% depending on the taxable base.

Allowances

Decree-Law 7/2022 introduced an autonomous rebate of 100% of the resulting tax liability in Andalucia, so in 2022, no-one resident in the Region, regardless of their wealth, paid IP. However, the creation of the national Large Fortunes Solidarity Tax (ISGF) in 2023 led to a further reform. Both must now be calculated, but there is a mechanism to decide the net amount payable. Bizarrely, whichever way it is calculated, the liability is the same but which body (Autonomous Region such as Andalucia or central Government) receives the money depends on the choice made.

Comment

Wealth taxes are, in principle, a mechanism for redistributing wealth and funding public services. However, they can be difficult to compute unless they relate to purely numerical assets such as bank balances. The rocky road that IP has ridden over recent years and the desire amongst Autonomous Regions to compete for the residence of high-wealth individuals (with their taxes and investments) has meant that, in practice, it has not generated as much as, perhaps, most non-payers would like. In 2021, only just over 11.000 people (in a population of almost 48 million) made a declaration of IP. Their average wealth was €22 million and the tax revenue generated was €623 million.