BackThe Temporary Solidarity Tax on Large Fortunes is, in principle, no longer temporary. This has happened through Royal Decree-Law 8/2023, of 27 December, adopting measures to deal with the economic and social consequences of the conflicts in Ukraine and the Middle East, as well as to alleviate the effects of the drought, which was approved on 28 December last.
In its fifth additional provision, this tax has been extended ‘until the revision of property taxation in the context of the reform of the regional financing system is carried out’.
The approval of this regulation took place in the context of the Constitutional Court’s confirmation of this tax.
However, this tax will not only affect taxpayers in these regions, but also those with high wealth in other regions such as Asturias, Cantabria, Catalonia and the Region of Murcia, where the maximum marginal rate of IP is lower than 3.5%, which means that the ITSGF rate will be applied. In contrast, in communities with higher IP rates, the situation will remain unchanged.
Law 38/2022 of 27 December introduced this tax as a supplement to the IP, of a state nature and not transferable to the Autonomous Communities, with the purpose of levying an additional tax on the assets of individuals exceeding three million euros.
Those taxpayers whose net wealth exceeds this figure are obliged to file a tax return for this new tax. In order to avoid possible double taxation, the Wealth Tax liability paid at regional level can be deducted from the ITSGF liability. Only if the wealth tax liability is zero or lower than the ITSGF liability, the difference will have to be paid.
This tax, which is levied on the assets of individuals exceeding 3 million euros, will be filed from 1 to 31 July 2024, after the end of the Wealth Tax (IP) campaign, and will be carried out digitally using form 718.
This tax is established to prevent taxpayers from being exempt due to bonuses offered by certain autonomous communities (Madrid, Andalusia and Galicia).
The rule was challenged by the Communities of Madrid and Andalusia on the grounds that it encroached on autonomous competences, violated the principle of legal certainty and the principle of economic capacity and non-confiscation.
In a judgment of 22 November 2023, the Plenary of the Constitutional Court dismissed the appeals of unconstitutionality filed by the Junta de Andalucía and the Government of the Community of Madrid. These appeals were based on legislative defects and an invasion of State competences.
The majority of the Plenary argued that the law that included the amendment creating the tax also served to create other taxes and, in terms of competences, determined that the ITSGF complements the IP, a state-owned tax ceded to the autonomous communities.
Despite this, a dissenting opinion questioned the approval of this tax, arguing that ‘the anticipated application of the ITSGF unconstitutionally affects the principle of legitimate expectations and legal certainty, by undermining the reasonable expectations of citizens regarding the actions of the public authorities in the application of the law’.
The figure becomes indefinite The BOE of 28 December 2023 published Royal Decree-Law 8/2023, of 27 December, which adopts measures to address the economic and social consequences of the conflicts in Ukraine and the Middle East, as well as to mitigate the effects of the drought.
These tax measures include the indefinite extension of the application of the ITSGF, until the taxation of assets is reviewed in the context of the reform of the regional financing system.
This Royal Decree-Law has extended the minimum exemption of 700,000 euros in the ITSGF to taxpayers under real obligation (non-residents). In addition, it makes it compulsory to file tax returns electronically. However, for Wealth Tax, the possibility of establishing this obligation is contemplated, but has not yet been determined.
The tax rate The new rate will be 1.7% for estates between 3 and 5.3 million euros, 2.1% for estates between 5.3 and 10.6 million euros, and 3.5% for estates above 10.6 million euros. The rules of the IP law will be applied to determine the taxable base, including a minimum reduction of 700,000 euros.
Taxpayers are obliged to file a tax return if the tax liability, calculated in accordance with the tax rules and after applying the corresponding deductions or allowances, is payable.
The configuration of the ITSGF coincides with that of the IP in most of its essential aspects (exemptions, taxable and assessable bases, tax rates, limit of the gross tax liability, etc.).
The taxable base consists of the net assets, i.e. the difference between the value of the assets and rights and the charges and encumbrances that reduce their value, as well as personal debts and obligations. The valuation rules laid down in the IP Act are applied to determine this.
Taxable persons are subject to the same conditions as in the IP. Non-residents in another EU Member State must designate a representative in Spain before the deadline for filing the tax return in order to comply with their tax obligations under this tax.
This measure does not apply to non-EU Member States of the European Economic Area (EEA) where there are regulations on mutual assistance in tax and collection matters as provided for in the LGT. Residents who leave Spain after the taxable event and go to a third country which is not a member of the EU or the EEA must appoint a representative before filing the ITSG return.
At B LAW & TAX we are experts in international and high net worth taxation. If you have any concerns about the application of this tax, please do not hesitate to contact us for a better management of your personal wealth.
B Law & Tax International Tax & Legal Advisors.
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