Wealth Tax: Reduce IP and ITSGF Legally with the Right Structure

Spain's Wealth Tax (Impuesto sobre el Patrimonio, IP), regulated by Law 19/1991, is an annual tax on the net assets of individuals resident in Spain (worldwide assets) or non-residents (Spanish-situs assets), with a personal minimum exemption of EUR 700,000 and rates that vary by autonomous community; several communities including Madrid apply a 100% allowance, making the effective liability zero for residents there. The Solidarity Tax on Large Fortunes (Impuesto Temporal de Solidaridad de las Grandes Fortunas, ITSGF), introduced in 2022, is a national tax applying to net assets above EUR 3 million at rates of 1.7%–3.5%, designed to neutralise regional IP allowances. The family business shareholding exemption — available when the entity carries on genuine economic activity, the taxpayer holds at least 5% individually (or 20% with family), and management remuneration exceeds 50% of employment and business income — provides a total IP exemption on qualifying interests and is the primary planning instrument for business-owning families in Spain.

Spain is, alongside Norway and Switzerland, one of the few developed countries that maintains an annual tax on the net assets of individuals. The combined IP/ITSGF plus IRPF can result in effective marginal rates exceeding 60% on capital returns for the largest fortunes. Understanding this dynamic and planning for it in advance is one of the most financially consequential decisions a high-net-worth taxpayer can take — and one that many defer until the bill has become very large.

Why Spanish Wealth Tax and ITSGF are Avoidable with the Correct Structure

The Solidarity Tax on Large Fortunes (ITSGF), created in 2022, was expressly designed to neutralise the 100% IP allowances that Madrid and several other communities had established. For residents in those communities, the ITSGF effectively restored wealth taxation on net estates above EUR 3 million — at rates of 1.7% to 3.5% of net worth. Combined with IRPF on income, the patrimonial tax bill accumulates year after year without planning. Yet the legal framework offers powerful instruments that many business owners and high-net-worth individuals are not using: the family business exemption, holding restructuring, Beckham Law interaction, and exit tax planning. The critical distinction is between accepting the tax as unavoidable and proactively designing the structure that minimises it. Our wealth tax specialists calculate your exact exposure before proposing any structural change.

Our Wealth Tax Diagnostic and Planning Process

Our team begins with a full patrimonial exposure diagnostic: we calculate the IP and ITSGF taxable base under the current structure, identify exempt and non-exempt assets, and quantify the annual tax burden and its trend over recent years. This diagnostic frequently reveals that the family business exemption is not being correctly applied — either because the qualifying conditions are not all met, or because they were met historically but have been inadvertently eroded as the business owner’s involvement changed. On that basis, we design the optimal structure: holding restructuring to channel qualifying assets into exempt entities, verification and reinforcement of the management remuneration ratio for the family business exemption, analysis of the Beckham Law interaction with IP for expatriate taxpayers, and — for those considering a change of fiscal residence — a complete exit tax analysis under Art. 95 bis LIRPF with comparative burden in alternative jurisdictions. We coordinate with the tax planning team to ensure that wealth tax optimisation is integrated into the overall corporate and personal tax strategy rather than addressed in isolation.

Real Results in IP and ITSGF Planning: 60-80% Reduction in Wealth Tax Exposure

• Patrimonial exposure diagnostic with exact IP and ITSGF quantification before any structural change is proposed.
• Family business exemption planning: verification of all qualifying conditions and design to maintain them sustainably as the business evolves.
• Holding restructuring with genuine economic substance documentation, robust against AEAT review.
• Exit tax analysis for large fortunes considering relocation: Art. 95 bis LIRPF calculation, deferral mechanisms, and comparative overall tax burden in target countries.
• Annual monitoring of IP and ITSGF exposure as estate composition changes and as the ITSGF’s legislative future evolves.

The family business exemption in IP is the most powerful planning instrument for business owners. When shareholdings in operating businesses qualify for exemption, the IP taxable base falls dramatically. However, the exemption is not automatic: it requires that the entity carries on genuine economic activity, that the taxpayer maintains the required participation level (5% individually or 20% with family), and that they exercise management functions remunerated at more than 50% of total income. This last condition is the one most frequently breached inadvertently — particularly when a business owner reduces active involvement or formally retires without restructuring the remuneration profile. Planning this transition is a critical element of any succession planning process.

The holding structure interacts directly with IP. A well-designed holding that exercises genuine management functions over subsidiaries with the required economic substance may qualify as a family business entity, making its shares exempt. However, the AEAT rigorously examines whether the holding has real activity — not merely legal ownership — and a structure that passes a substance audit in the first year must continue passing year after year as the business evolves. The family office framework provides the ongoing governance and monitoring structure to ensure these conditions are maintained continuously.

For non-resident individuals with assets in Spain — most commonly real estate — IP applies to Spanish-situs assets without the benefit of the personal minimum exemption available to residents. Non-resident tax and IP planning for foreign investors with Spanish real estate portfolios is a specialised area where the interaction between IRNR, IP, and ISD must be managed holistically to avoid structuring that optimises one tax while creating exposure in another.

Wealth Tax in Spain: the current framework

The Impuesto sobre el Patrimonio (IP) is Spain’s annual net wealth tax, applying to the total value of worldwide assets (for Spanish tax residents) or Spanish-situs assets (for non-residents) above the applicable exemption threshold. The national IP framework — Law 19/1991 — establishes a minimum threshold of EUR 700,000 of net taxable wealth, a specific additional EUR 300,000 exemption for primary residence, and progressive rates from 0.2% to 3.5% on the taxable base.

However, the autonomous communities have broad powers to modify IP thresholds, rates, and bonifications — creating significant variation in actual IP burden across Spain’s regions. The Comunidad de Madrid applies a 100% bonification (effective zero IP), while other regions apply varying degrees of relief. This regional variation has driven significant residency planning decisions for HNWI individuals in Spain.

Overlaying the regional IP structure is the national Impuesto Temporal de Solidaridad de las Grandes Fortunas (ITSGF), introduced in 2022 and currently assessed as permanent following the Constitutional Court’s 2024 ruling on its compatibility. The ITSGF applies to worldwide net wealth above EUR 3 million at rates of 1.7% (EUR 3-5 million), 2.1% (EUR 5-10 million), and 3.5% (above EUR 10 million), with a credit for IP paid — effectively ensuring that HNWI individuals pay at least the ITSGF rate regardless of regional IP bonifications.

Valuation of assets for IP and ITSGF

The IP/ITSGF base is the market value of all assets on 31 December, net of qualifying liabilities. Asset valuation rules vary by asset class:

Real estate: the higher of the assessed value for property tax (valor catastral), the acquisition price, or the value determined by the AEAT using official coefficients. For recently acquired properties, the purchase price is typically determinative. For properties held long-term, the AEAT’s coefficient valuation may exceed the actual market value — a situation that can be challenged with a formal independent valuation (tasación).

Business interests and company shares: for unlisted companies, the IP rules prescribe a formulaic value based on the higher of: (i) theoretical book value; (ii) capitalised earnings (last three-year average profit / 20%); or (iii) the value determined by an arm’s length transaction in the reference year. The capitalised earnings formula frequently overstates the value of volatile or cyclical businesses — commissioning an independent market valuation to challenge the formulaic value can be cost-effective for substantial shareholdings.

Financial investments: listed securities at the closing price on 31 December; fixed income and cash deposits at nominal value; foreign investments in the applicable foreign currency converted at ECB year-end rate.

Intellectual property and intangible assets: at acquisition cost or market value as appropriate; frequently undervalued relative to commercial significance if based purely on historical cost.

The empresa familiar exemption

Business assets qualifying under the empresa familiar exemption (Article 4.Ocho.Dos LIP) are exempt from the IP base. The qualifying conditions mirror the ISD empresa familiar requirements: the company must conduct a genuine economic activity (not merely hold passive investments), a family member must receive remuneration representing the principal portion of their income (>50% of all earned income), and the taxpayer must hold at least 5% individually (or 20% with family members).

The interaction of the empresa familiar exemption with the ITSGF is complex — the ITSGF generally mirrors the IP exemptions, but the detailed rules differ in specific circumstances. Our team maps the full exemption picture for each client to ensure that the empresarial assets are appropriately excluded from both bases.

Contact our wealth tax planning team for a review of your IP and ITSGF position and the applicable planning strategies.

Wealth tax planning strategies for non-residents

Non-residents with assets in Spain are subject to Wealth Tax (IP) only on their Spanish-sited assets — a much narrower base than the worldwide assets taxed for Spanish residents. Spanish-sited assets include: real estate located in Spain, business assets of a Spanish permanent establishment, shares in Spanish companies (not listed) representing more than 25% of the capital, and other assets whose underlying value derives principally from Spanish real estate.

For non-resident investors holding Spanish real estate directly, IP is typically unavoidable — the real estate is directly Spanish-sited and its value enters the IP base. The planning option for future acquisitions is to hold Spanish real estate through a non-resident company (typically a holding company in Luxembourg, Netherlands, or Cyprus) — shares in a foreign company holding Spanish real estate are not Spanish-sited assets for IP purposes, providing a complete IP exemption. However, this structure triggers anti-avoidance rules (the IRNR income attribution for foreign holding companies holding Spanish real estate) and specific AEAT scrutiny, requiring robust non-tax commercial substance to be defensible.

For residents, the most significant planning lever remains the empresa familiar exemption (Art. 4.8 of the Wealth Tax Law), which exempts qualifying family business assets from the IP base, provided: the principal activity of the company is not asset management, the taxpayer’s ownership interest is at least 5% (or 20% held by the family group), and the taxpayer or a family member performs management functions receiving remuneration representing more than 50% of the taxpayer’s total business, professional, and work income. Our tax planning practice manages the empresa familiar qualification assessment annually and advises on any adjustments needed to maintain the exemption.

ITSGF and its interaction with IP: the current position

The Impuesto Temporal de Solidaridad de las Grandes Fortunas (ITSGF), introduced by Law 38/2022, applies to taxpayers with worldwide net wealth above EUR 3M at rates of 1.7% on the tranche EUR 3M to EUR 5.35M, 2.1% on EUR 5.35M to EUR 10.695M, and 3.5% on the excess. A credit is available for IP paid, preventing double taxation between the two taxes. The ITSGF currently applies to both residents and non-residents with Spanish-sited assets above EUR 3M.

The Constitutional Court has confirmed the constitutionality of the ITSGF (STC 107/2024), and the tax is now treated as a permanent feature of the Spanish tax landscape despite its original designation as “temporal.” Non-resident taxpayers with significant Spanish real estate holdings above EUR 3M should specifically model their exposure to ITSGF, which — unlike IP — cannot be avoided through the Madrid bonification strategy.

Self-assessment questions: do you need wealth tax planning?

Spanish residents with total assets — net of debts — above EUR 700,000 (after the EUR 300,000 primary residence deduction) are in principle subject to IP. However, the effective tax rate depends significantly on: (1) the autonomous community of residence and its IP bonification policy; (2) the composition of assets and the availability of exemptions (primarily empresa familiar and primary residence); and (3) the level of worldwide net wealth that determines exposure to the ITSGF.

A wealth tax review is particularly urgent for: individuals who have recently become Spanish tax residents (particularly under the Beckham regime, where only Spanish-sited assets are currently in scope but worldwide assets will be included from year seven); individuals who have inherited or received gifts of significant assets and have not reviewed the impact on their wealth tax position; and individuals with business assets who have not formally assessed and documented the empresa familiar exemption conditions. Contact our wealth tax practice for an initial assessment of your IP and ITSGF position and the applicable planning options.