Background and criticism
The Wealth Tax was introduced in Spain in 1977 under a census premise, its singular objective being to ascertain the real wealth of Spanish citizens without losing the opportunity, of course, for taxpayers to pay tax on it.
At present, although the global trend seems to be towards the abolition of such taxes, Spain is the only country in the European Union (member of the OECD) that maintains this tax. While it is true that Italy and Belgium levy some kind of tax on certain assets, these taxes are not equivalent in terms of their scope of application and the associated tax burden.
However, there is no doubt that in the current social context of free movement of people and capital, as well as the predominant use of information technology, accentuated after the COVID health crisis, the Wealth Tax is widely perceived as an archaic figure that clearly discourages investment and encourages relocation, not only between countries, but also between the Spanish Autonomous Regions themselves.
What is Wealth Tax levied?
Wealth Tax is a direct and personal tax levied at the individual level on the personal assets of natural persons, for the calculation of which personal debts and obligations for which the holder is liable are also taken into account.
Unlike Personal Income Tax, which is levied on worldwide income, Wealth Tax is levied on the taxpayer’s net wealth.
Taxpayers of Wealth Tax
In general, individuals who have their habitual residence in Spanish territory are liable to Wealth Tax on the basis of personal liability.
On the other hand, individuals who do not have their habitual residence in Spain and are the owners of assets or rights that are located, can be exercised or must be fulfilled in Spanish territory are generally liable to Wealth Tax on the basis of a real obligation.
Transfer of competence to the Autonomous Communities
Wealth Tax is a tax whose yield is transferred in its entirety to the Autonomous Communities, which means that all the revenue from this tax will remain in the Autonomous Community itself. This tax is the ultimate expression of a fiscal policy instrument between the Autonomous Communities.
As a result of the transfer, the Autonomous Communities can assume regulatory powers over the minimum exemption, tax rate and tax deductions and allowances.
None of us will be surprised by this, as the controversy between the Spanish central government and certain autonomous communities is well known. In this regard, Andalusia, Extremadura and the Community of Madrid have a 100% tax rebate, while Galicia has a 25% rebate. Cantabria has already announced that for the 2024 tax year, 100% of the tax will be subsidised.
In any case, some communities have established special rules for the effective payment of the tax while the Temporary Solidarity Tax on Large Fortunes remains in force.
When will I be obliged to pay Wealth Tax?
Wealth Tax is payable on 31 December of each year and affects the assets owned by the taxpayer on that date.
Persons who die during the year on any day prior to 31 December are not obliged to file a Wealth Tax return.
The tax is filed using Form 714, on the same dates as the Income Tax Return.
Did you know?
The aforementioned Law 38/2022, of 27 December, has modified Law 19/1991, of 6 June, on Wealth Tax, to enable the power to tax shareholdings in non-resident entities with underlying real estate assets located in Spain, thus also affecting the Temporary Solidarity Tax on Large Fortunes. Indeed, in cases of real obligation to contribute, securities representing holdings in the equity of entities, not traded on organised markets, at least 50% of whose assets are made up, directly or indirectly, of real estate located in Spanish territory, will be deemed to be located in Spanish territory. For these purposes, in order to determine the calculation of assets, the net book values of all the assets entered in the accounts must be replaced by their market values on the accrual date.
In this way, the legislator intends to avoid cases in which the taxpayer, by the fact of acting as a non-resident legal entity, avoids the levying of the aforementioned taxes.
Calculation of the tax
The calculation of the tax varies according to the legislation of each autonomous community, but in general it is based on the sum of all the assets and rights of the taxpayer. Debts and up to 300,000 euros of the value of the main residence are subtracted from this amount.
The minimum exemption is 700,000 euros. The taxable base is obtained by subtracting the exempt minimum from the net worth, on which the corresponding tax rates are applied.
The net base of the Wealth Tax will be taxed at the rates of the scale approved by each Autonomous Community. Failing this, it is taxed at the following scale:
In the case of marriages in community of property regime, the joint assets are divided between both spouses and deductions and minima are applied individually.
Coexistence/coexistence between Wealth Tax and the Temporary Solidarity Tax on Large Fortunes
In the absence of a wealth tax, TWO…
The Temporary Solidarity Tax on Major Fortunes, in force since 29 December 2022, following the publication in the Official State Gazette of Law 38/2022, of 27 December, is a complementary tax to the Wealth Tax, of a direct nature, with a state character and not subject to transfer to the Autonomous Regions, which levies an additional tax on the wealth of individuals with an amount greater than three million euros. In theory, the complementary nature of the Temporary Solidarity Tax on Major Fortunes with respect to Wealth Tax is due to the fact that under the Temporary Solidarity Tax on Major Fortunes you can apply the deductions and allowances inherent to Wealth Tax, as well as deduct the amount actually paid in Wealth Tax, This avoids double taxation and, therefore, avoids taxing the same taxable event twice, since the taxpayers of the Temporary Solidarity Tax on Major Fortunes will only be taxed on the part of their wealth that has not been taxed by their Autonomous Community.
Broadly speaking, the Major Fortunes Solidarity Tax is a tax whose configuration basically coincides with that of the Wealth Tax, both in terms of its territorial scope, exemptions, taxpayers, taxable and net taxable bases, accrual and tax rates, and in terms of the limit of the total tax liability. For practical purposes, the difference lies in the taxable event, given that only net assets exceeding 3,000,000 euros are taxed.
Accrual and temporal scope of the rule
With regard to its temporal scope, it is expected to be in force for two years from its entry into force, accruing on 31 December of each financial year, with a self-assessment and payment period yet to be determined by the Ministry of Finance and the Civil Service.
Friendly Reminder
To conclude, it should be noted that the full amount of this tax, together with the amounts of Personal Income Tax and Wealth Tax, may not exceed, for taxpayers subject to the tax by personal obligation, 60% of the sum of the taxable bases of the former, without the reduction being able to exceed 80% of the Solidarity Tax liability prior to said reduction.
Article by:
Senior tax manager
jose.perezfuster@metricson.com
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