Wealth tax shield extended to non-resident taxpayers

In our Post | Non-residents to benefit from wealth tax shield, we addressed how, in 2023, the High Court of Justice of the Balearic Islands allowed a Belgian taxpayer to reduce his wealth tax ("WT") due in Spain based on the amount of his total income.

This means that the WT due, together with the personal income tax (“PIT”) due, cannot exceed 60% of the PIT’s taxable base (with some exceptions). This rule aims to prevent the combined taxation of both taxes from becoming excessive and confiscatory (tax shield), which could force taxpayers to sell part of their assets to meet their tax obligations (when their income for the year is insufficient). This is why a similar rule with a joint limit is provided under the Temporary Solidarity Tax on Large Fortunes, combining the three taxes (which we discussed in our Post | Publication of tax return for tax on large fortunes), with the approval of Form 718 of the above tax.

According to the wording of law, only taxpayers resident in Spain (who are taxed in Spain on a worldwide basis) could benefit from this limit, as confirmed by a recent decision from the Central Economic-Administrative Court (resolution of October 20, 2025,  00/11005/2022). However, the court extended this benefit of resident taxpayers to non-resident taxpayers, even though resident taxpayers are taxed on all their assets and non-resident taxpayers only pay WT on assets located in Spain.

The application of this 60% tax cap rule can significantly reduce the WT payable by taxpayers, with a maximum reduction limit of up to 80% of the WT due. In the case of the Belgian taxpayer, this rule—applied taking into account the personal income tax paid in Belgium—resulted in his tax on the WT being reduced by the maximum reduction of 80%. However, the approach of the High Court of Justice of the Balearic Islands was not definitive as the proceedings reached the Spanish Supreme Court.

In its judgments of October 29, 2025 (ECLI:ES:TS:2025:4849), and November 3, 2025 (ECLI:ES:TS:2025:4846), the Supreme Court confirmed this approach favorable to the taxpayer and has extended the tax shield to non-resident taxpayers.

In particular, the court concluded that limiting this tax relief only to Spanish residents violates European Union (EU) law on the free movement of capital, to the extent only WT taxpayers resident in Spain are allowed to reduce this tax based on their income. Therefore, it confirms the criterion of the High Court of Justice of the Balearic Islands that allowed the Belgian taxpayer to benefit from this WT reduction based on his income that had been taxed in Belgium.

In these judgments, the Supreme Court’s approach aligns with the reasoning that would have been made by the Court of Justice of the EU ("CJEU"). It also justifies the court’s refusal to refer the matter for a preliminary ruling by citing different caselaw, which does not include the CJEU’s judgment of October 4, 2018 (ECLI:EU:C:2018:811), also dealing with the taxation of non-residents in light of the EU fundamental freedoms.

The Supreme Court begins by noting a difference in tax treatment (as mentioned, only resident taxpayers are eligible for this tax shield) that makes investment by non-residents less attractive and therefore restricts the free movement of capital under article 63 of the Treaty on the Functioning of the EU. However, according to caselaw on article 65 of that Treaty, this restriction would be valid if it concerns situations that are not objectively comparable in light of the content and objective of the measure or if it is validly and proportionately justified on grounds of public interest.

The core issue addressed in these judgments revolves around the comparability analysis; indeed, causes of justification were not alleged. The existing asymmetry (between WT that only taxes assets located in Spain and a Belgian tax that affects the taxpayer's entire income) does not pose an obstacle for the Supreme Court, which concludes that all WT taxpayers, residents and non-residents, are in a comparable situation and should be able to apply this joint limit. The court states that "The existence of a real or personal obligation is not relevant as it does not alter the nature of the tax or its objective, which remains the same." It also considers that this approach is confirmed given the parallels with the CJEU judgment of September 3, 2014 (ECLI:EU:C:2014:2130), regarding tax benefits approved by the autonomous communities related to inheritance and gift tax.

The Supreme Court points out that a non-comparable situation could arise if the tax authorities do not have sufficient information on the non-resident taxpayer. However, it clarified that non-comparability does not apply to taxpayers resident in another EU Member State (such as Belgium), because the Spanish tax authorities can request evidence to verify the correct settlement of the taxes. Thus, the court considers that the mechanisms for exchanging information between EU Member States allow the necessary information to be obtained and that confiscation should be avoided for both residents and non-residents as they are in a comparable situation.

The Supreme Court judgments do not include guidance on how these rulings should be applied in practice. They simply state that "Habitual residence, depending on whether in Spain or elsewhere, does not justify the different treatment given to residents and non-residents, consisting of the fact that the limit on the full taxation provided under article 31 does not apply to non-residents. This difference in treatment is discriminatory and unjustified." In other words, while the Supreme Court denounces and eliminates discrimination, it does not provide specific guidelines on how to resolve it.

However, based on the court’s reasoning and its validation of the criterion of the High Court of Justice of the Balearic Islands, this approach should imply that the tax shield outlined in article 31 of the WT Act be extended to non-resident taxpayers, so that the resulting WT due on assets located in Spain could be reduced by considering the personal income tax paid in their country of residence. This demands a case-by-case analysis that may raise the impact of this tax shield and the existence of taxes paid in excess.

This caselaw will affect future years and accruals but should also allow the recovery of part of the tax from previous years, by requesting rectification of affected self-assessments that have not yet expired (at least the WT relating to 2021 onwards, as they are still within the statute of limitations – which is four years in Spain). For earlier years (before 2020), while the statute of limitations may apply, those cases could still be eligible for a claim based on the principle of nullity by way of full nullity, under article 217.1.a) of General Tax Law 58/2003, of December 17.

This approach should also apply to the Tax on Large Fortunes, in force since 2022, and the limit of its taxation – together with the PIT and WT amounts – given its complementary nature and its identical regulation (article 3.Twelve of Law 38/2022).

All of this remains subject to possible legal modifications to both the WT Act and the Tax on Large Fortunes regulations, which would formalize this criterion or provide other mechanisms to avoid the discrimination.

Finally, it is important to note that an appeal regarding the unconstitutionality of the WT was admitted to the Spanish Constitutional Court (CC) for processing in April 2021. A decision on this matter is expected in the first quarter of 2026; however, it is necessary to take into consideration that, in its latest pronouncements, the CC has limited the effects of unconstitutionality to cases in which self-assessments had already been challenged before the date of the judgment. Taxpayers who had not initiated proceedings before that date cannot benefit from an eventual decision favorable to taxpayers.

For more information, please contact our Knowledge and Innovation Area specialists.