Until 2021, the Wealth Tax applies throughout Spain, except in the Autonomous Community of Madrid, and is levied on the mere holding of assets, net worth, by individuals above certain limits. Although the Wealth Tax is mainly aimed at tax residents in Spain, who will be taxed according to the value of their worldwide wealth, non-residents of Spain who hold property or assets in Spain are also subject to it, with a minimum exemption of 700,000 euros. It should also be noted that the tax will accrue on 31 December of each year and will affect the assets held on that date.

Spain introduced in 2022 a new tax designed to tax high net worth individuals: the Temporary Solidarity Tax on Great Fortunes (ITSGF), or colloquially known as the new ‘tax on the rich’. The Wealth Tax did not apply until then to residents of the Autonomous Community of Madrid, who enjoyed a 100% exemption from this tax. However, the central government, with the presence of extreme left-wing parties, did not want there to be a territory exempt from wealth taxation, and so created the figure of the Temporary Solidarity Tax on Great Fortunes (ITSGF) applicable to residents in all of Spain, including Madrid.

Therefore, as of 2022, two figures will coexist in Spain:

• A Wealth Tax to which all individuals resident in Spain with worldwide wealth in excess of €700,000 are subject, as well as non-resident individuals with wealth in Spain in excess of that amount.
• A Temporary Solidarity Tax on Major Fortunes to which all individuals resident in Spain with worldwide wealth in excess of 3,000,000 euros, as well as non-resident individuals with wealth in Spain in excess of this amount, are subject.

The Temporary Solidarity Tax on Major Fortunes was initially created only for the years 2022 and 2023, although it was subsequently decided to apply it indefinitely (by means of a formal instrument, the Royal Decree-Law, which is unfit for a decision of this nature, which will be the subject of the corresponding appeals before the appropriate judicial bodies for the recovery of the Tax paid since 2024 by those affected).

As of 2023, therefore, the two taxes will coexist in the Spanish legal system, although the contributions paid as Wealth Tax are deductible in the Temporary Solidarity Tax on Large Fortunes, so that they will not be taxed twice for the same taxable event.

Why does it affect non-residents?

Although the Wealth Tax and the ITSGF are mainly aimed at tax residents in Spain, non-residents in Spain who hold property or assets in Spain and have a wealth calculated according to the rules of the tax of more than 3,000,000 euros are also subject to it. These non-residents will be taxed in Spain on the basis of the value of their assets in Spain, while residents in Spain will be taxed on a personal basis.

Non-resident taxpayers will be entitled to the application of the specific regulations approved by the Autonomous Community where the greater value of the assets and rights they own and for which tax is required, because they are located, can be exercised or have to be fulfilled in Spanish territory.

Therefore, if you are a foreign national with property, investments or businesses in Spain, it is essential that you understand the implications and scope of this new tax, taking into account the regulations applicable in the region where the assets, rights and investments in question are located.

Our aim is to help you understand the ITSGF and make informed decisions about your tax situation in Spain.

1) Scope of the Tax

Who is subject to the ITSGF?

The Temporary Solidarity Tax on Major Fortunes (Impuesto Temporal de Solidaridad de las Grandes Fortunas, ITSGF) is levied on the simple holding of property or assets (regardless of the yield, if any, obtained therefrom) by individuals whose net wealth on 31 December of the previous year exceeds 3,000,000 euros.

Tax residence: The ITSGF taxes the worldwide net assets of individuals resident in Spain for tax purposes (i.e. the assets and rights they own worldwide), as well as the net assets of non-residents located in Spanish territory. It is important to note that any non-resident may be subject to tax if he/she has worldwide assets in excess of 3,000,000 euros, even if part of these assets are not located in Spain. In this case, only the part of the taxpayer’s wealth that is located in Spain will be subject to taxation.

For example: Mr. John Keates owns a house in London worth 2.5 million euros and has a portfolio of financial products worth 3.3 million euros. Mr. Keates buys a beautiful house in Cadiz near the beach for a price of 1.1 million euros. Will he be taxed in Spain as ITSGF?

The answer is that he will be taxed in Spain, as his worldwide wealth exceeds a value of 3 million euros, but he will only be taxed in Spain on the value of the house he has purchased in Cadiz.

Please pay special attention to the following:

For these purposes, securities representing the participation in the equity of any type of entity, not traded on organised markets, whose assets consist of at least 50 per cent, directly or indirectly, of real estate located in Spanish territory, will be considered to be located in Spanish territory. For the purpose of calculating the assets, the net book values of all the assets entered in the accounts shall be replaced by their respective market values as determined on the date on which the tax accrues. In the case of real estate, the net book values shall be replaced by the values that must operate as the tax base for the tax in each case, in accordance with the provisions of Article 10 of this law.

What are net assets?

Net worth is calculated by adding the value of the taxpayer’s assets and rights and subtracting from the result the taxpayer’s debts and the value of the charges and encumbrances on its assets.

It should therefore be noted that the taxable amount of the wealth tax consists of the net wealth, which is the difference between the taxpayer’s assets and rights, on the one hand, and his debts and obligations, on the other hand. The rules for valuation and determination of the taxable base are the same as in the Wealth Tax.

Exemptions and deductions

The following are exempt from taxation

1. The first 700,000 euros of the taxpayer’s assets.
2. Assets forming part of the Historical Heritage.
3. Rights relating to pension plans.
4. Rights derived from intellectual or industrial property as long as they remain in the author’s estate and, in the case of industrial property, are not assigned to business activities.
5. The assets and rights of natural persons necessary for the pursuit of their business or professional activity, provided that this is carried out habitually, personally and directly by the taxable person and constitutes their main source of income.
6. Full ownership, bare ownership and the right of usufruct for life over shares in entities, whether or not listed on organised markets, provided that the following conditions are met:
   1. The institution’s main activity is not the management of movable or immovable assets. An entity shall be deemed to manage movable or immovable property and therefore not to be engaged in an economic activity when any of the following conditions are met for more than 90 days of the financial year: More than half of its assets consist of securities, or More than half of its assets are not engaged in economic activities.
   2. The taxpayer’s shareholding in the capital of the entity is at least 5% calculated individually, or 20% jointly with his spouse, ascendants, descendants or relatives up to the second degree.
   3. The taxpayer effectively exercises management functions in the entity, receiving remuneration that represents more than 50 per cent of the total business, professional and personal work income.
7. The taxpayer’s main residence, up to a maximum amount of 300,000 euros.

After applying these rules and exemptions, taxpayers whose tax liability, determined in accordance with the tax regulations and after applying the appropriate deductions or allowances, is payable will be obliged to file a tax return.

It is important to note that exemptions and deductions are subject to certain requirements and limits and that our clients should consult the concurrence of these requirements before considering them applicable.

When is the tax due?

The ITSGF is due on 31 December of each year, and the tax return is filed in the following year.

2) Tax rates

The Temporary Tax on the Solidarity of Great Fortunes (ITSGF) has a progressive tax rate scale that is applied according to the value of the taxpayer’s net wealth. This means that as wealth increases, so does the tax rate to which it is subject.

The structure of the tax rates applied according to the net taxable income (it should be remembered that there is a minimum exemption of 700,000 euros) is as follows:

• Between 3,000,001 and 5,300,000 euros: A tax rate of 1.7% is applied.
• Between 5,300,001 and 10,600,000 euros: The tax rate increases to 2.1%.
• From 10,600,001 euros: A tax rate of 3.5% is established.

For example:

If a person has a net wealth of 8,000,000 euros, the tax calculation would be as follows:

• The taxable base would be reduced by 700,000 euros to arrive at a net taxable base of 7,300,000 euros.
• On the first 5,300,000 euros the rate of 1.7% would be applied (resulting in a tax liability of 90,100 euros).
• On the next 2,000,000 euros (up to 7,300,000 euros) the rate of 2.1% would be applied (resulting in a tax liability of 42,000 euros).
• The total tax payable would therefore be 132,100 euros.

Limitations on the full tax liability:

It is important to bear in mind that the full ITSGF tax liability, together with the Personal Income Tax (IRPF) and Wealth Tax (IP) liability, may not exceed 60% of the IRPF taxable bases for taxpayers subject to personal liability (and, therefore, this limit does not apply to taxpayers subject to real liability, i.e. non-residents).

The taxpayer may deduct the wealth tax liability for the year actually paid from the resulting tax liability.

3) Formal Obligations

Submission of the return

Taxpayers subject to the Temporary Tax on the Solidarity of Major Fortunes (ITSGF) are obliged to file an annual return detailing all the assets and rights making up their net wealth as at 31 December of the previous year.

Deadline for filing

The deadline for filing the return is between 1 and 31 July, using form 718. This form will be available exclusively in electronic format and its filing and payment will be made electronically, in general, using the help forms available on the Inland Revenue website.

Method of filing

The ITSGF return is filed electronically through the Tax Agency’s electronic headquarters. It is not necessary to file it if the debt resulting from the self-assessment is zero, as a result of the application of Wealth Tax.

4) Tax Planning

Tax planning is a fundamental tool to optimise the tax burden and minimise the impact of the Temporary Solidarity Tax on Large Fortunes (ITSGF). However, it is crucial to stress that tax planning must always be carried out within legal limits and respecting the principles of good faith and transparency.

The following are some tax planning strategies that may be useful:

• Optimising the asset structure: Reviewing and reorganising the asset structure to reduce the net taxable value. This may include selling non-strategic assets, gifting to family members or incorporating partnerships.
• Taking advantage of deductions and allowances: Identify and apply all deductions and allowances available under current regulations.
• Succession planning: Incorporate ITSGF in succession planning to minimise the tax impact in the event of death.
• Professional advice: Consult a specialised tax advisor to design a tailor-made and personalised tax planning strategy.

It is important to bear in mind that tax planning is a dynamic process that must be adapted to changes in regulations and to the personal circumstances of each taxpayer. In turn, it is essential to personalise these strategies according to the particular characteristics of the client’s wealth and financial situation.

5) Curiosities and collection of the ITSGF

Revenue from the ITSGF has gone from 619 million in 2023, the year in which it came into force, to 38 million in 2024, due to the reactivation of the Wealth Tax by several autonomous communities. Thus, the data published by the Tax Agency show that, up to August, there had been a 93.9% drop in the collection of this tax.

On the other hand, it is interesting to note that the Constitutional Court has ruled on this tax in its ruling of 7 November 2023 (BOE of 18 December 2023). This ruling rejected the first of the appeals of unconstitutionality against art. 3 of Law 38/2022 on the ITSGF brought by the Community of Madrid, thus denying the possible infringement of the Autonomous Regions’ financial autonomy. As well as other constitutional principles, such as the principle of legal certainty, economic capacity and non-confiscation. Subsequently, the Junta de Galicia, the Junta de Andalucía and the Region de Murcia filed appeals along the same lines. And which, as the court points out, must be resolved by applying the doctrine established in relation to the appeal by the Community of Madrid.