B Law & Tax
22 June 2023

Tax Advisor: Reduction of the Temporary Solidarity Tax on Large Estates in Madrid, Galicia and Andalusia

The Ministry of Finance has published in the Official State Gazette (BOE) the latest model of the solidarity tax on large fortunes. This tax seeks to counteract the autonomic bonuses in the wealth tax and its declaration will be carried out between July 1 and 31 of this year, based on the wealth declared in 2022. However, the Form, known as Form 718, allows taxpayers in the autonomous communities that apply discounts to pay less than initially estimated. This mainly benefits the large fortunes of Madrid and Andalusia, which have a 100% rebate on wealth tax, and Galicia, where this rebate stands at 50%.

It all stems from the tax protection mechanism that high net worth individuals can use to reduce their tax burden. This mechanism is known as the “joint limit” and aims to ensure that the sum of income tax (IRPF), wealth and tax on the wealthy does not exceed 60% of the sum of the IRPF taxable bases. In addition, a maximum reduction of 80% in the tax liability is established. In short, this design seeks to avoid an excessive burden and not to penalize taxpayers with high wealth but low yields.

Taxpayers in Madrid, a region that has maintained full discounts for several years, may especially benefit from this design. Likewise, high net worth individuals in Andalusia can also take advantage of it, as the autonomous community began granting a 100% rebate on wealth tax in 2022. To a lesser extent, those with large fortunes in Galicia can also take advantage, given that the rebate went from 25% in 2022 to 50% in 2023. However, the final wording of the model makes the temporary tax, specifically designed to counteract the discounts applied by some autonomous communities, lose effectiveness.

B Law & Tax International Tax & Legal Advisors.

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