What is the tax on large fortunes in Spain and how does it affect you if you are a taxpayer?

Recently, in November, the new tax on large fortunes was announced by the Minister of Finance. This new tax represents the Spanish government’s response to the tax cuts made by some autonomous communities, mainly in the wealth tax. Do you want to know the keys to the tax on large fortunes in Spain? Then this article is for you!

What is the tax on large fortunes in Spain?

The Government expects to have the new solidarity tax on large fortunes ready before the end of the year in order to be able to collect it in 2023. This being so, it will be imposed on all those who have a wealth exceeding three million euros. 

However, it will only be applied in those territories that allow for a rebate on the wealth tax or provide for lower nominal rates than those announced in this new tax.

It is important to mention that the tax on large fortunes in Spain overlaps with the wealth tax. Both taxes are state taxes, but the latter is ceded to the autonomous communities. 

Specifically for those that keep 100% of the collection and have competence in the application of bonuses, deductions and rates different from those provided for in the general rule. 

For this reason, in order to avoid double taxation, the wealth tax, which is managed by the autonomous regions, will be deductible in the new solidarity levy.

Will all owners of large fortunes pay the same?

The answer is no. See the image below where we explain how it works:

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How is the taxable income calculated?

In order to calculate the taxable base of this tax, the same rules of the wealth tax must be applied.

You see, there is a minimum exemption of 700,000 euros and assets and property such as the first 300,000 euros of the habitual residence, the family business or debts are not counted.

For practical purposes, it will apply to fortunes of 3.7 million euros if they are not already taxed for wealth.

How long will the new tax on large fortunes be in force?

Initially, it was estimated that the tax on large fortunes in Spain would be in force for the next two years. However, there is doubt as to whether it will be extended beyond that time or become permanent.

At the time, the same thing had already happened with the wealth tax, which was approved by the former Secretary of State for Finance, Miguel Ángel Fernández Ordóñez.

In response to these doubts, the Tax Inspector, Francisco Vaciero, has answered that everything will depend on the elections of December 2023. In the event of a change in the Government, there is a possibility that the Law will be repealed after the two years of validity. Otherwise, it will probably not be repealed and will continue to exist.

So far, the United Podemos economic team has already expressed its desire to make the tax permanent, but so far its government partners have opposed the idea.

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How much is expected to be raised by this new tax?

According to Treasury calculations, it is estimated that this new tax will result in the taxation of some 23,000 taxpayers, 0.1% of the total.

The Executive estimates that, on an annual basis, 1,5000 million Euros will be collected annually through the solidarity tax. In this sense, after two years of its entry into force, a total of 3,000 million Euros could be collected.

Will the tax on large fortunes in Spain be applied throughout the Spanish territory?

In reality, the new tax will have no effect in La Rioja, the Valencian Community, Aragón, Castilla-La Mancha, the Canary Islands, Extremadura and Castilla y León. This is because these autonomous communities already impose equal or even higher rates in all the wealth tax brackets.

So, how many communities will it affect? Well, according to the Fedea (Foundation for Applied Economics Studies) report, it details that it will only affect the Autonomous Communities that subsidize the wealth tax or apply lower rates. In that sense, it will affect ten communities:

In these Autonomous Communities, the threshold from which the new tax will be demanded is not the same as in the others. Fedea calculates that in the Balearic Islands the amount from which it would start to pay is 209.9 million. The archipelago has a maximum nominal rate of 0.05% lower than the new tax.

In Galicia, on the other hand, it would affect wealth from 8.6 million euros. In Bizkaia, the threshold corresponds to large fortunes 9.6 million, in Navarra 10.6 million. In the provincial councils of Alava and Guipuzkoa the 13 million.

In Asturias, Cantabria and Murcia and Cantabria will be paid from 23.9, 25 and 26 million euros, respectively. 

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Are you already up to date with the tax news in Spain? Do you qualify as a taxpayer for the new tax on large fortunes in Spain? Contact our TAS Consulting team at tasconsultoria@tas-sl.es and our professional managers will provide you with the complete advice you need to prosper in the business world.