What is Spain’s new solidarity tax?

Spain’s solidarity tax on large fortunes is a temporary tax imposed on the wealthiest residents to help the government deal with the cost of living crisis. 

As the name implies – ‘impuesto de solidaridad a las grandes fortunas’ or ‘solidarity tax on large fortunes’ – is only imposed on very wealthy individuals and most people will not be affected.  It is temporary in nature, hopefully just for two years. And although it is extra to Spain’s regular annual wealth tax, you do not pay tax twice.

The purpose of this new tax is to generate more revenue from taxpayers with a greater economic capacity to help the government tackle the energy and inflationary crisis and help lower earners cope with the current high cost of living.

The solidarity tax also harmonises the taxation of wealth across the different autonomous communities. This could discourage regions from introducing lower rates of wealth tax, or applying a 100% relief, to try and compete with Madrid and Andalucía which effectively abolished it for local residents.

Law 38/2022 of 27 December 2022 confirmed the new temporary solidarity tax on large fortunes, and it was published in Spain’s Official State Gazette the following day.

Who is liable for Spain’s solidarity tax?

This is a central state tax (not ceded to the autonomous communities) and the allowances and tax rates cannot be modified by the regional governments.

It applies to:

• Spanish tax residents with net wealth above €3 million. When calculating an individual’s net wealth, worldwide assets will be included in the calculation.
• Individuals not considered Spanish tax residents with net Spanish assets above €3 million.

What years does it apply for?

Since the law was published and entered into force before the end of  2022, it applies for the Spanish tax (calendar) years of 2022 and 2023.

After this, it will be reviewed to decide about its application in future tax years.

If you have enough wealth to be liable to pay this tax, you will need make your first payment between April and June this year (2023), calculated on your wealth as at 31 December 2022.

Are there any allowances and exemptions?

Spain’s solidarity tax works in the same way as the regular wealth tax.

• Spanish tax residents can reduce their general taxable base by €700,000.
• In addition, tax residents owning a Spanish main home will also be able to deduct up to €300,000 euros from the net value of the main home.

Since solidarity tax only applies to wealth above €3 million, in most cases only those with a net wealth higher than €4 million will have a tax liability.   And this is per individual, so spouses/civil partners with joint assets each have their own allowances.

Likewise, the same exemptions applicable to the regular wealth tax are also applied to this tax with the same requirements, for example, the exemption on family businesses.

What are the tax rates?

How are my assets valued?

Again, the rules here follow those for the regular wealth tax.

So for example, in the case of real estate properties, the higher of the following values would be used:

1. the cadastral value
2. the value established by the tax authorities in a tax audit or another tax procedure
3. the acquisition price
4. the reference value of the cadastre.

I already pay wealth tax, do I need to pay solidary tax as well?

No. To avoid double taxation, the law allows the taxpayer to deduct any wealth tax paid in their autonomous community from their solidarity tax liability. Therefore –

• In Autonomous Communities where wealth tax is payable, the tax liability paid will be deductible from the solidarity tax.
• In those Autonomous Communities where wealth tax is not payable (Madrid and Andalucía), the solidarity tax will be fully payable because no amount will be deductible.

Here are a couple of case studies

Example 1:  Spanish tax resident, living in the Valencia region, with a net value of assets of €5.5 million, including a main home valued at €500,000.

• Wealth tax liability (after deducting the personal and main home allowances) = €86,270
• Solidarity tax liability (after deducting the €3m and allowances) = €25,500
• Solidarity tax to be paid after deducting the credit for wealth tax = Nil

Example 2: Spanish tax resident living in the Valencia region, with a net value of assets of €14 million, including a main home valued at €500,000.

• Wealth tax liability (after deducting the personal and main home allowances) = €367,875
• Solidarity tax liability (after deducting the €3m and allowances) = €137,608
• Solidarity tax to be paid after deducting the credit for wealth tax = Nil

Example 3: Spanish tax resident, living in the Madrid or Andalucía region, with a net value of assets of €5.5 million, including a main home of €500,000.

• Wealth tax liability = none (100% exemption)
• Solidarity tax liability (after deducting the €3m and allowances) = €25,500
• Solidarity tax to be paid = €25,500

Example 4: Spanish tax resident living in the Cataluña region, with a net value of assets of €20 million, including a main home of €500,000.

• Wealth tax liability (after deducting the personal and main home allowances) = €486,207
• Solidarity tax liability (after deducting the €3m and allowances) = €297,948
• Solidarity tax to be paid after deducting the credit for wealth tax = Nil

Example 5: Spanish tax resident living in the Cataluña region, with a net value of assets of €45 million, including a main home of €500,000.

• Wealth tax liability (after deducting the personal and main home allowances) = €1,157,207
• Solidarity tax liability (after deducting the €3m and allowances) = €1,172,948
• Solidarity tax to be paid after deducting the credit for wealth tax = €15,741

Wealth tax planning

As can be seen from the above case studies, the solidarity tax only really impacts people living in autonomous regions where wealth tax is not payable (Andalucía and Madrid). And then, considering the allowances, only individuals with net wealth above €4 million are affected.

However, considering the difference between some regional wealth tax rates (such as Cataluña) and the solidarity tax rate, in some cases the deduction of the wealth tax liability will not cover the full solidarity tax liability, as seen in example 5.

If you are affected by this tax, you may be able to take steps to reduce your liability for 2023, in the same way that you can for the regular wealth tax.  Blevins Franks has been providing personalised advice to expatriates living in or relocating to Spain for more than 45 years, and our advisers live locally.

Contact us today.