B Law & Tax
05 January 2024

Tax Advisor: Adjustments to the tax legislation of the Community of Madrid

In this article, we will discuss the recent tax legislation of Madrid. In its ruling 149/2023 dated November 7th, the Constitutional Court rejected the challenge to the Temporary Solidarity Tax on Large Fortunes.

Arguments included violations of “ius in officium,” financial autonomy of the Community of Madrid, the organic law reservation, and principles such as economic capacity.

Following the declaration of constitutionality, the Madrid Assembly temporarily adjusted the tax credit for the Wealth Tax for those subject to the Temporary Solidarity Tax on Large Fortunes. Those not affected by this temporary tax will continue to be exempt from the Wealth Tax.

 

Changes to Personal Income Tax (IRPF): adjustments to the scale, personal and family minimums, deductions, and limits.

The measures related to the Personal Income Tax aim to mitigate the upward impacts of prices, preventing taxpayers from facing a higher tax burden.

This deflation will come into effect starting the fiscal year 2023, and various modifications are made to the Consolidated Text of Legal Provisions of the Community of Madrid on taxes ceded by the State, approved by Legislative Decree 1/2010, of October 21, to carry out this adjustment.

 

The regional scale is established as follows:

Taxable base
(up to euros)
Total tax liability

(euros)

Remaining taxable base
(up to euros)
Applicable rate
(percentage)
0 0 13.362,22 8,50%
13.362,22 1.135,79 5.642,41 10,70%
19.004,63 1.739,53 16.421,05 12,80%
35.425,68 3.841,42 21.894,72 17,40%
57.320,40 7.651,10 En adelante 20,50%

 

Article 2 of Legislative Decree 1/2010 of the Community of Madrid establishes the minimum taxpayer threshold at 5,956.65 euros annually, with additional adjustments for individuals over 65 and 75 years old, aiming to provide tax benefits to those in specific situations. Regarding the minimum for dependents, specific amounts are determined based on the number and age of children, including a supplement for those under three years old.

A minimum for ascendants is set, with an extension for those over 75 years old, recognizing the financial responsibility associated with caring for the elderly. On the other hand, the minimum for disabilities is detailed with specific sums, considering different levels of disability and providing an additional increase for assistance expenses.

Detailed deductions are presented, such as the deduction for the birth or adoption of children, the deduction for international adoption, and the deduction for family foster care of minors. Each of these deductions has specific amounts and conditions, reflecting the intention of the legislation of the Community of Madrid to provide tax incentives for specific family and social situations.

The deduction for unpaid foster care of individuals over sixty-five and/or with disabilities is 1,546.50 euros per person over 65 years or with a disability who resides more than 183 days a year in unpaid foster care with the taxpayer.

As for the deduction for the care of ascendants, it is estimated at 515.50 euros per ascendant over 65 years old or with a disability. In the case of multiple entitled taxpayers, the deduction is distributed equally.

Deduction for rental of habitual residence: individuals under 35 years old can deduct 30% (max. 1,237.20 euros) of rent payments, provided they exceed 20% of the taxable base. Also applicable to those over 35 and under 40 unemployed with family responsibilities.

When talking about the deduction for expenses derived from the lease of homes, it is 10% of the expenses associated with the lease, with an annual limit of 154.65 euros. Regarding the deduction for educational expenses, 15% for schooling and language teaching, and 5% for exclusive school clothing. Limit of 412.40 euros per child, increasing to 927.90 euros if the schooling deduction is already applied. For Early Childhood Education, the limit is 1,031 euros per child.

The deduction for the care of Children under Three Years, Dependent Adults, and People with Disabilities allows taxpayers to deduct a percentage of contributions to the Special System for Domestic Employees of the General Regime of Social Security, with an annual limit.

In addition, the Deduction for the Payment of Interest on Loans for the Acquisition of Housing for Young People Under Thirty allows taxpayers under 30 years old to deduct a percentage of the interest paid on mortgage loans for the purchase of their habitual residence.

Another relevant measure is the Deduction for the Acquisition of the Habitual Residence by Birth or Adoption of Children, where taxpayers who acquire a home as a result of the birth or adoption of children can benefit from a deduction on the acquisition price.

The Deduction for Obtaining the Status of a Large or Special General Family, allowing taxpayers with this condition to deduct a percentage of the regional full tax, with specific limits according to the family category. The Deduction for Families with Two or More Descendants and Reduced Incomes, establishing a deduction applicable to taxpayers with certain income levels, providing tax relief by reducing the regional full tax. These measures aim to promote specific tax benefits for particular situations and contribute to the well-being of certain segments of the population.

The Deduction for Investment in the Acquisition of Shares and Social Participations of New or Recently Created Entities establishes a tax benefit of 40% on the amounts invested during the period in shares and social participations, with annual limits and specific conditions. In the case of companies linked to educational institutions or research centers, the deduction increases to 50%.

From another perspective, the Deduction to Stimulate Self-Employment of Individuals Under Thirty-Five provides the opportunity for individuals under 35 years old who register for the first time as entrepreneurs to apply a deduction of 1,031 euros in the regional full tax, subject to certain requirements, including maintaining registration for at least one year.

The Deduction for Investments Made in Entities Listed on the Alternative Stock Market allows the deduction of 20% of investments in shares of growing companies listed on the Alternative Stock Market, with a limit of 10,310 euros and meeting specific conditions.

Restrictions are established for the application of deductions, linking eligibility to the taxable base and tax situation of taxpayers, varying according to the type of deduction contemplated in articles 6, 7, 8, 10, 11, 11 bis, 13, 13 bis, and 9. It is specified that the base of the deduction contained in article 9 cannot exceed 10% of the liquidable base.

 

 

 

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