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.