The Temporary Solidarity Tax on Large Fortunes (ITSGF), approved through Law 38/2022 of 27 December, establishes a levy on the net assets of individuals exceeding three million euros. Unlike the Wealth Tax — which is managed by Spain's autonomous communities with full regulatory powers, including the ability to set reliefs and exemptions — the ITSGF is a national tax with no possibility of regional reduction. Its retroactive entry into force for the 2022 tax year was one of the most controversial aspects of its parliamentary passage.
Tax Structure
The tax applies at a progressive rate divided into three bands:
- Band 1: 1.7% for net assets between €3 million and €5 million
- Band 2: 2.1% for net assets between €5 million and €10 million
- Band 3: 3.5% for net assets above €10 million
The ITSGF taxable base is calculated using the same valuation rules and the same exemptions as the Wealth Tax, governed by Law 19/1991. A personal allowance of €700,000 applies per taxpayer, and the habitual residence is exempt up to €300,000, on the same terms as the Wealth Tax.
The most significant design feature is the deduction mechanism: the amount effectively paid under the regional Wealth Tax may be subtracted from the ITSGF liability. This makes the ITSGF an effective floor on wealth taxation for residents of communities with full Wealth Tax reliefs — Madrid, Andalusia, Galicia and Extremadura — who had previously faced zero liability under that tax. For those taxpayers, the full ITSGF becomes payable, because the deduction of a zero Wealth Tax quota yields zero relief.
Practical Implications
For taxpayers who had structured their assets assuming the full regional Wealth Tax relief would continue, the new levy represents a fundamental disruption. The additional tax burden can be substantial: a net estate of €6 million held by a Madrid resident who previously paid nothing under Wealth Tax now faces an ITSGF liability of approximately €68,000 per year (1.7% on the first €2 million above the allowance, plus 2.1% on the next million). For estates above €10 million, the liability scales significantly.
This disruption makes an immediate review of asset structure essential. Several elements can legitimately reduce the ITSGF taxable base:
- Family business shareholdings: exempt if the requirements of Article 4.Eight of Law 19/1991 (Wealth Tax Act) are met — the entity must carry out genuine economic activity, the taxpayer must perform management functions, and the remuneration from those functions must represent more than 50% of the taxpayer’s total employment and professional income.
- Assets used in business activities: property and other assets essential to the exercise of business or professional activities may fall outside the taxable base, provided the conditions for such classification are met.
- Unit-linked life insurance policies: depending on their structure, certain life insurance contracts with participation in investment funds do not count in the Wealth Tax or ITSGF base if correctly structured.
- Deductible liabilities: the ITSGF, like the Wealth Tax, taxes net assets — so documented debts and charges reduce the taxable base.
The ITSGF self-assessment is filed using Form 718, presented during the same period as the Wealth Tax: the month of July of the year following the accrual date. Accrual occurs on 31 December each year, meaning the 2022 and 2023 tax years have already been settled, with filing deadlines in July 2023 and July 2024 respectively.
Unconstitutionality Appeal
Several autonomous communities — led by Madrid and Galicia — filed challenges before the Constitutional Court alleging encroachment on their fiscal competences, double taxation with the Wealth Tax, and violation of the non-confiscation principle in Article 31.1 of the Constitution. The appeal does not suspend the obligation to pay the tax, but the Court’s ruling will have general effect and could result in refunds of amounts paid plus the corresponding late-payment interest.
Given the risk of the four-year statute of limitations on claims for refund of undue payments, it is essential to file formal challenges simultaneously with the self-assessment. The recommended strategy is to file Form 718 on time to avoid surcharges, then immediately file an administrative rectification request or appeal, interrupting the limitation period and preserving the right to recover payments if the Constitutional Court rules in favour of the appellants.
Outlook for Forthcoming Years
The “temporary” label has not, in practice, prevented the tax from being applied continuously. The extension of its validity through budget laws or specific legislation is a realistic scenario that taxpayers must factor into their medium-term planning. Analysis of asset structure — including the proportion of exempt assets, levels of indebtedness, distribution of ownership between spouses, and the case for certain donations or corporate restructurings — is more relevant now than at any previous point.
Contact our tax team for a personalised assessment of the impact on your assets. See our tax planning services.
