When will Spain's millionaire tax be scrapped?
Bumper tax revenues and noncommittal noises coming from the Spanish government have led some to speculate that the so-called 'temporary' tax on millionaires could be extended beyond 2024.
In the post-pandemic period of economic uncertainty with soaring inflation, the Spanish government stepped in to try and tax the country's wealthiest individuals in order to take the burden off low earners.
To do so, the country's left-wing coalition levied a new temporary tax on people with net fortunes of more than €3 million in an attempt to help Spaniards weather the economic storm of the cost-of-living crisis.
Coming into effect in 2023 and remaining in place for 2024, the so-called 'solidarity tax' (impuesto solidario) was labelled "temporary" and is paid by a miniscule amount of people. It is not a tax on income, but on assets and holdings, and is commonly referred to in Spain as a tax on ‘large fortunes’ (grandes fortunas).
READ ALSO: How Spain's new millionaire tax will affect wealthy foreigners
As of September 2023, around a year after the tax measure was first brought in, the Spanish government reported that it had raised €623 million in revenue, considerably less than the initial projection of €1.5 billion. According to tax data, the millionaire's tax targeted just 12,010 payers, which represents barely 0.1 percent of the total taxpayer base in Spain.
On average these high-worth individuals each paid €52,000, which is complementary to the Wealth Tax.
READ ALSO: Q&A: How does Spain's solidarity tax on wealth work?
However, though this tax was first brought in on a temporary basis, higher than expected tax revenues from the Wealth tax (Impuesto de Patrimonio) have led some in government to hint that the so-called 'solidarity tax' on millionaires might not actually be that temporary at all. Spain's tax agency (AEAT) reported predicted expected tax income of €1.98 billion from Wealth Tax for the 2023 financial year.
Noncommittal noises from the government about extending the tax have led to speculation. If comments from the government are anything to go by, the millionaire's tax could well be extended into 2025.
Spain's Finance Minister, María Jesús Montero, stated in late-2023 that the new tax had fulfilled its "political objective" of guaranteeing "proportionality" in the tax system and refused to rule out making it permanent if analysis shows that all taxpayers pay their fair share and the tax burden does not disproportionately impact the middle classes.
She also expressed confidence that there would not be an avalanche of legal challenges, as was predicted by some tax advisors at the time. Crucially, the Finance Minister did not rule in or out any possibility, indicating that a decision will be taken after analysing the "performance" of the tax.
"We have to study its performance, we want to do so in the context of the debate on regional funding because… we have to be able to discuss the most effective way of making these fortunes pay," Montero explained. Until this debate takes place, she added, the wealth tax "will be maintained." The Minister did not indicate when this would be, however.
But it's not just the government who envisages the tax being extended, or even becoming permanent. Spain's General Council of Economists (CGE) conceded it was likely the millionaire's tax "is here to stay" during an end of year tax report in 2023.
The legal text of the supposedly temporary tax contains a review clause to assess, at the end of its term, currently scheduled for 2024, whether it will be extended or abolished.
In Spain some taxes are levied on a regional level, and several regions have tinkered with tax policy in order to try and increase tax deductions and bonuses to avoid it, as well as allowing it to be deducted from Wealth Tax. This has mostly been done in right-wing run regions such as Madrid and Galicia, and often has an underlying political element because the national government is a Socialist (PSOE) led coalition.
Of course, for some regions attempting to implement tax loopholes and workarounds to bypass the millionaire's tax is also a way of trying to get the tax revenue into regional rather than national coffers.
The Madrid region even challenged the millionaire's tax in court, but in November's Spain's Constitutional Court dismissed the appeal and backed the national government.
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In the post-pandemic period of economic uncertainty with soaring inflation, the Spanish government stepped in to try and tax the country's wealthiest individuals in order to take the burden off low earners.
To do so, the country's left-wing coalition levied a new temporary tax on people with net fortunes of more than €3 million in an attempt to help Spaniards weather the economic storm of the cost-of-living crisis.
Coming into effect in 2023 and remaining in place for 2024, the so-called 'solidarity tax' (impuesto solidario) was labelled "temporary" and is paid by a miniscule amount of people. It is not a tax on income, but on assets and holdings, and is commonly referred to in Spain as a tax on ‘large fortunes’ (grandes fortunas).
READ ALSO: How Spain's new millionaire tax will affect wealthy foreigners
As of September 2023, around a year after the tax measure was first brought in, the Spanish government reported that it had raised €623 million in revenue, considerably less than the initial projection of €1.5 billion. According to tax data, the millionaire's tax targeted just 12,010 payers, which represents barely 0.1 percent of the total taxpayer base in Spain.
On average these high-worth individuals each paid €52,000, which is complementary to the Wealth Tax.
READ ALSO: Q&A: How does Spain's solidarity tax on wealth work?
However, though this tax was first brought in on a temporary basis, higher than expected tax revenues from the Wealth tax (Impuesto de Patrimonio) have led some in government to hint that the so-called 'solidarity tax' on millionaires might not actually be that temporary at all. Spain's tax agency (AEAT) reported predicted expected tax income of €1.98 billion from Wealth Tax for the 2023 financial year.
Noncommittal noises from the government about extending the tax have led to speculation. If comments from the government are anything to go by, the millionaire's tax could well be extended into 2025.
Spain's Finance Minister, María Jesús Montero, stated in late-2023 that the new tax had fulfilled its "political objective" of guaranteeing "proportionality" in the tax system and refused to rule out making it permanent if analysis shows that all taxpayers pay their fair share and the tax burden does not disproportionately impact the middle classes.
She also expressed confidence that there would not be an avalanche of legal challenges, as was predicted by some tax advisors at the time. Crucially, the Finance Minister did not rule in or out any possibility, indicating that a decision will be taken after analysing the "performance" of the tax.
"We have to study its performance, we want to do so in the context of the debate on regional funding because… we have to be able to discuss the most effective way of making these fortunes pay," Montero explained. Until this debate takes place, she added, the wealth tax "will be maintained." The Minister did not indicate when this would be, however.
But it's not just the government who envisages the tax being extended, or even becoming permanent. Spain's General Council of Economists (CGE) conceded it was likely the millionaire's tax "is here to stay" during an end of year tax report in 2023.
The legal text of the supposedly temporary tax contains a review clause to assess, at the end of its term, currently scheduled for 2024, whether it will be extended or abolished.
In Spain some taxes are levied on a regional level, and several regions have tinkered with tax policy in order to try and increase tax deductions and bonuses to avoid it, as well as allowing it to be deducted from Wealth Tax. This has mostly been done in right-wing run regions such as Madrid and Galicia, and often has an underlying political element because the national government is a Socialist (PSOE) led coalition.
Of course, for some regions attempting to implement tax loopholes and workarounds to bypass the millionaire's tax is also a way of trying to get the tax revenue into regional rather than national coffers.
The Madrid region even challenged the millionaire's tax in court, but in November's Spain's Constitutional Court dismissed the appeal and backed the national government.
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