Wealth Tax in Spain and the COVID-19 Crisis

Published on 27 May 2020

The Spanish government, far from praiseworthy objectives to relaunch business activity such as the strengthening of liquidity and savings for companies and families, is planning an aggressive increase in taxes. Among them is the Wealth Tax (Impuesto del Patrimonio  or “IP”).

This tax was practically eliminated in financial year 2008, but was temporarily recovered due to the last real estate recession. By some twist of fate, however, it has been extended until now and has come to stay permanently.

Let us recall that IP taxes the net equity possessed by citizens (not companies directly), that is, the value of the assets minus the liabilities that a person has. There is a general exemption of 700,000 euros and other specific, significant exemptions such as the habitual dwelling, participations in certain companies or assets dedicated to economic activities. In addition, in some Autonomous Communities, as is the case with Madrid, nothing is currently paid for this tax.

That said, the government now wishes to substantially modify IP to increase its power to collect which, according to different sources, could reach up to 11 billion euros. It is noteworthy that in 2017 the State’s earnings from this tax were approximately 1.1 billion euros. The government’s intentions are, thus, clear.

The purpose of this brief article is not to unravel the mystery of the aforementioned collection miracle, which in the end may not be very realistic, but to warn particularly family-owned companies and investors that now is the time to plan and structure the composition of their wealth. This way they may, insofar as possible, protect themselves against the drastic measures proposed by the Spanish government.