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Tax on Large Fortunes: Unconstitutional?

The Tax on Large Fortunes has become the most controversial newly created tax in recent times. Designed to tax the wealth of the individuals who accumulate the most wealth, the so-called ‘Solidarity Tax on Large Fortunes’ is, in principle, temporary in nature, applying to fiscal years 2022 and 2023, although its use could be extended in the future.

The deadline for the payment of the Large Fortune Tax is very close: next July 31, 2023 is the deadline for filing the new form 718 if you are obliged to do so.

To answer your questions, in this article we tell you what the Large Fortune Tax is, what its raison d’être is, who it affects, how it is calculated and how much the tax bill is for taxpayers subject to it.

We also explain why there are doubts about its constitutionality and what repercussions an eventual cancellation of the tax may have for those who have already paid it.

If you want to know more or you are not sure if you have to pay this tax for the last fiscal year 2022, please contact our team of lawyers and economists in Comunidad Valenciana, contact our team of lawyers and economists in Comunidad Valenciana: we can help you to comply with your tax obligations and to process any tax claim. We can help you to comply with your tax obligations and to process any claim in tax matters.

What is the Large Fortune Tax?

The Solidarity Tax on Large Fortunes is a new temporary state tax whose raison d’être is to put a stop to the total or partial exemptions in the Wealth Tax that are applied in some autonomous communities.

In this way, the central government ensures that at least the highest net worth individuals are taxed, avoiding the limitations approved at the autonomous community level.

Some examples are the Community of Madrid or Andalusia, where, in practice, the Wealth Tax is not paid. For the other Communities, they will see its effect residually, since what taxpayers pay in Patrimonio is deducted.

It is important to know that the regulation of this tax avoids double taxation, allowing the deduction of the amount paid as Wealth Tax at the autonomous community level. Therefore, you will only be required to pay the Major Wealth Tax if your autonomous community wealth tax liability is zero or less than the Major Wealth Tax liability, in which case you will be required to pay the difference.

Who is obliged to pay the Large Fortune Tax?

As to who must pay the tax on large fortunes, the taxpayers are individuals with a net worth of more than 3,000,000 euros at the date of accrual of the tax (December 31, 2022 and 2023).

There is a minimum exemption of 700,000 euros, so that, in practice, the tax will start to be applied from 3,700,000 euros of net worth.

In order to know the value of your assets, you must follow the same rules as those applicable to Wealth Tax.

These valuation rules apply to assets whose value is difficult to determine, such as real estate.

How much is paid for the Large Fortune Tax and how is it calculated?

The Large Wealth Tax is progressive in nature, which means that there are a series of brackets to which different percentages or rates are applied, ascending as the value of the taxpayer’s wealth increases:

  • Between 3 and 5.3 million euros: 1.7%.
  • Between 5.3 and 10.6 million euros: 2.1%.
  • Over 10.6 million euros: 3.5 %.

To find out how much we will pay, we will first have to calculate the taxable base of the tax on large fortunes, which is formed by the net worth. This concept refers to the difference between assets / rights and debts / obligations of the taxpayer.

For example, you should take into account the value of real estate, shares or equity interests, life insurance, temporary or life annuities, bank deposits, jewelry and other valuables, art and antiques, some types of vehicles, boats…

Once the value of your estate has been determined, please note that the same exemptions may apply as in the case of the Wealth Tax Law. Among them, the aforementioned exemption of the first 700,000 euros .

Individuals whose tax liability, after applying the appropriate deductions or allowances, is payable will be obliged to file a tax return for the Large Fortunes Tax.

Deadline to file the 2023 Major Wealth Tax

The deadline for filing Form 718 for the 2022 Large Fortune Tax began last July 1 and ends on July 31, 2023.

Its management must be carried out telematically, since the form is only available in electronic format.

Doubts about the constitutionality of the Tax on Large Fortunes

The Large Fortune Tax has raised doubts about its constitutionality from the outset, for several reasons.

  • Retroactive application. One of the main complaints about this tax is its retroactive application, since it affects the 2022 fiscal year, having been approved in November of last year. The detractors of this tax claim that this way of proceeding goes against legal certainty and violates the right of taxpayers to carry out their tax planning without last minute surprises that could affect the effect of their decisions.
  • Invasion of autonomic competences. It is a tax identical to the Wealth Tax, specifically designed to nullify the effect of the exemptions approved by some autonomous regions within their competences. Therefore, we could be facing an invasion of autonomic competences.
  • Unequal application to nationals and foreigners. The exemption of the first 700,000 euros only applies to taxpayers resident in Spain (i.e., those who live in the country for more than 180 days a year), and not to non-residents.
  • Legal instrument used for its approval. The tax was introduced in an accelerated manner in our legal system through an amendment to the bill on temporary taxes on banks and energy companies, thus avoiding the political and social debate that our constitution provides for. In addition, regulations dealing with financial relations between the State and the autonomous regions must be processed through an Organic Law, which is not the case here.

Am I obliged to pay the Big Fortune Tax even though it may be unconstitutional?

In spite of the doubts about the constitutionality of the Tax on Large Fortunes, the truth is that this does not exempt you from complying with this tax obligation .

Our recommendation is that you file the corresponding form and pay the amount due, on time and following all the legal steps.

However, it is advisable to file a claim as soon as possible by means of a request for rectification of the self-assessment submitted so that, in the event that this tax is finally declared unconstitutional, it will be easier to recover your money.

Please note that, on occasions, the Constitutional Court has only allowed those who had already made a claim before the date of the ruling to do so (this was the case of the municipal capital gains tax).

How to avoid paying the 2023 Large Wealth Tax?

There are still months left in 2023 to make a correct tax planning of the taxes to be paid next year. Of course, those individuals who already pay the same or a higher amount in Wealth Tax will avoid paying Large Fortunes, since these amounts are deducted in Large Fortunes.

Any transaction you make during the year that reduces the value of your assets will contribute to a lower amount to be paid in this tax. We are talking about donations or incorporation of family businesses where you can relocate your assets (always complying with the requirements of the law), since, for example, companies, participations or business assets related to activities are exempt.

If you need help in complying with your estate tax obligations or want to make a claim, please contact our team of lawyers and economists, please contact our team of lawyers and economists: we are specialists in Tax LawWe are specialists in Tax Law with extensive experience in the management of this type of taxes.