The court establishes that non-residents who pay wealth tax on assets located in Spanish territory and rights that can be exercised in that territory are entitled to apply the tax benefit of the combined limit in the income tax and wealth tax (límite conjunto de cuotas) provided for in Article 31.1 of the Spanish Wealth Tax Law (LIP). Until the issuance of these rulings, this tax benefit was reserved only for residents in Spain.
The court confirms that the exclusion of this limit for non-residents was discriminatory and unjustified, violating both the principle of free movement of capital under European Union Law and the principles of equality and non-discrimination enshrined in Spanish domestic legislation. It argues:
Habitual residence, whether in Spain or outside of it, does not justify the different treatment given to residents and non-residents, consisting of the non-applicability to the latter of the limit on the gross tax liability provided for in Article 31.1 of the Wealth Tax Law. This difference in treatment is discriminatory and not justified.
The tax benefit of the combined limit in the income tax and wealth tax included in Article 31.1 LIP is an anti-confiscation mechanism that aims at preventing a taxpayer’s total tax burden from being disproportionate to their income.
When this mechanism is applied, the sum of income tax (Spanish income tax IRPF or the equivalent tax in the taxpayer’s country of residence) and Spanish wealth tax is limited to 60% of the income tax base. If this threshold is exceeded, the wealth tax amount is reduced until the limit is reached, but by no more than 80% of the sum of income tax and wealth tax.
Consequences of the Ruling for Non-Residents
The doctrine consolidated by the Spanish Supreme Court translates into direct benefits for non-residents with assets (real estate property) in Spain, as they will be able to apply this limit, thus achieving a reduction in their wealth tax liability if the sum of their taxes (income + wealth) exceeds the 60% threshold of their income.
In this way, the court has opened the way for non-residents to request the rectification of the self-assessments for revisable years (currently, four years) and to obtain, where applicable, the refund of undue payments, plus the corresponding default interest.
Our firm recommends that interested persons, especially non-residents with significant real estate assets in Spain, carry out a detailed analysis of their Spanish wealth tax declarations for the last four fiscal years to calculate possible overpayments and request their refund from the Spanish Tax Authorities.
Our tax advisors are at your disposal to analyse your specific situation and, where appropriate, request the refund of undue payments.