The year 2023 concludes with notable Fiscal reforms . Among them, the ratification of the Wealth Tax by the Constitutional Court stands out, along with the abolition of the Inheritance and Gift Tax in certain Autonomous Communities such as Valencia and the Balearic Islands, following the elections on May 28. In Extremadura, the Property Tax and the tax on vacant homes have been eliminated. Additionally, in Galicia, there are plans to reduce the Property Transfer Tax to 8% starting in 2024.
Wealth Solidarity Tax receives constitutional support despite regional controversies
The Wealth Solidarity Tax, implemented at the end of 2022, has received backing from the Constitutional Court, despite disputes in some Autonomous Communities (CCAA) such as Madrid, Galicia, and Andalusia, which argued invasion of competencies.
This tax is applied to net assets exceeding 3 million euros, with accrual on December 31 and declaration filing between July 1 and July 31, with an exemption for the first 700,000 € of assets.
The Constitutional Court supported the legality of the tax, dismissing appeals filed by CCAA, such as Madrid, arguing that it does not infringe on regional competencies nor is confiscatory. Although Madrid, Andalusia, Galicia, and the Region of Murcia filed appeals, the Constitutional Court denied the precautionary suspension requested by Madrid and Andalusia.
On the other hand, individual votes from justices argued that this tax attacks the financial autonomy of the CCAA, as well as democratic principles, political representation rights, and the principle of tax legality.
For this reason, the Community of Madrid has approved the elimination of the bonus that existed in the Property Tax while the Wealth Solidarity Tax is in effect.
Fiscal reforms in regional governments after the May 28 elections
The elections on May 28 resulted in new regional governments that introduced significant changes in taxes. In the Valencian Community and the Balearic Islands, the new governments announced the elimination of the Inheritance and Gift Tax. Likewise, in the Valencian Community, the approval of reductions in Personal Income Tax (IRPF) and the elimination of the tourist tax are anticipated. In the Balearic Islands, various tax reductions have also been approved, highlighting the elimination of the Inheritance and Gift Tax and other measures, such as the abolition of the Property Transfer Tax for young individuals.
Additionally, the Property Transfer Tax has been eliminated for individuals up to 30 years old acquiring their first home, with additional discounts for people with disabilities and other specific categories. The Canary Islands also join the elimination of the Inheritance and Gift Tax, following the path of the Valencian Community and the Balearic Islands.
The government of Extremadura, led by the Popular Party, has approved an Urgent Measures Decree Law that includes several initiatives, among which is a reduction in the first two brackets of the Personal Income Tax (IRPF), benefiting primarily those with incomes below 22,200 euros. Additionally, a 100% discount on the Wealth Tax has been approved.
Furthermore, the elimination of the tax on vacant properties owned by large holders is anticipated, and the deduction for amounts paid for the rent of the primary residence will be increased to 30%.
A reduction to 8% in the Property Transfer Tax is expected to be implemented starting in 2024. This measure will result in additional savings of 1,000 euros for those acquiring a property worth 100,000 euros or 2,000 euros for one worth 200,000 euros, and so forth.
The Madrid Assembly has approved a deflation in the Personal Income Tax (IRPF) for the second consecutive year, applying to the next Income Tax declaration. This measure implies a 3.1% reduction in all brackets, the personal and family minimum, as well as existing deductions and associated income limits. A total of 3.5 million taxpayers in Madrid will benefit from this initiative in the 2024 income declaration, generating an estimated savings of 153 million euros, adding to the savings already generated by the measure approved in 2022.
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