Spain Reveals Details Of New Solidarity Tax On Wealth Over €3m – Wealth & Asset Management

The new Solidarity Tax (Impuesto
Temporal de Solidaridad de las Grandes
Fortunas) will operate as an additional
wealth tax for individuals whose taxable wealth exceeds
?3m.

Spain already has a wealth tax (Impuesto sobre el
Patrimonio) which is fully devolved to the 17 Autonomous
Regions (Comunidades Autónomas) of Spain, with each
Region having the authority to set their own wealth tax rates,
allowances and reductions.

Madrid applies a 100% tax credit for wealth tax purposes,
meaning that wealth tax has effectively been abolished in that
Region. Andalucía recently announced that it will follow in
the footsteps of Madrid and eliminate wealth tax with effect from
31st December 2022. Murcia has also declared it is considering
doing the same, and Galicia has increased the wealth tax credit
from 25% to 50%.

The new Solidarity Tax will be a national tax governed by the
central Government; it will therefore not be ceded to the
Autonomous Regions. This will prevent the Autonomous Communities
from modifying the tax rates or introducing additional allowances
and tax credits. One of the principal aims of the new Solidarity
Tax is to harmonise the rules across the Autonomous Communities in
relation to the taxation of wealth.

In many Autonomous Communities where wealth tax still applies
(and where the wealth tax rates are the same as the Solidarity Tax
rates), the Solidarity Tax will not create an additional tax burden
on individuals who live there, as any wealth tax liability can be
credited against the Solidarity Tax.

It will mainly affect individuals who live in the Autonomous
Communities of Madrid and Andalucía, where a 100% wealth tax
credit applies, effectively reducing wealth tax to zero in those
Regions.

However, it will also affect individuals resident in Regions
which have marginal rates of wealth tax that are lower than the
rates of Solidarity Tax or where the top rate of wealth tax is
lower than the 3.5% top rate tax of Solidarity Tax (such as in
Asturias, the Balearics, Cantabria, Cataluña and Murcia).
Individuals with high levels of wealth who are resident in those
Regions could end up paying an additional amount of Solidarity Tax
over and above the wealth tax they currently pay.

Main highlights

• The new Solidarity Tax is intended to be a temporary tax that
  will apply for two tax years.




• It will only affect individuals whose taxable wealth exceeds
  ?3m.




• The tax will be assessed at 31st December each year.




• The legislation needs to be approved by Parliament before it
  enters into force. If approved by 31st December 2022, it is
  possible that it may be introduced for 2022 and 2023. Otherwise, it
  will take effect from 31st December 2023.




• Although it is intended to be a temporary tax, there is a
  clause which allows for the tax to be evaluated at the end of the
  two year period and either maintained or abolished. There is
  therefore a possibility that the tax may become permanent.




• The main principles of the tax will follow that of wealth tax,
  for example, in terms of who is liable, the exemptions that apply
  and how to determine the taxable value of an asset.




• Each individual resident in Spain will be entitled to an
  allowance of ?700,000, plus ?300,000 against the value of the main
  home, as for wealth tax.




• The value of an individual’s business will be exempt in the
  same conditions and with the same requirements as for wealth
  tax.




• The scale rates will be as follows:

• The combined total of an individual’s income tax, wealth
  tax and Solidarity Tax liabilities cannot exceed 60% of the
  individual’s taxable income, subject to paying a minimum 20% of
  the Solidarity Tax.




• Where an individual is liable for both wealth tax and
  Solidarity Tax, the wealth tax liability will be credited against
  the individual’s liability to Solidarity Tax for the year.




• Overseas wealth taxes paid on the same assets are deductible
  against the Solidarity Tax.




• Individuals who are not resident in an EEA country will be
  obliged to appoint a fiscal representative for the purposes of
  filing the relevant return.

Mitigating Wealth Tax and Solidarity Tax

There are various ways in which you can mitigate potential
liabilities to wealth tax and Solidarity Tax, which may involve a
simple restructuring of assets and income. We would recommend you
seek professional advice tailored to your specific
circumstances.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.