In a previous note on the extension of the Spanish wealth tax shield to non-residents, we commented on a judgment by the High Court of Justice of the Balearic Islands that allowed a Belgian taxpayer to reduce his Spanish Wealth Tax (WT) liability by reference to his total income. That decision has now been confirmed and extended by the Spanish Supreme Court.
Under Spanish law, the WT due together with the Personal Income Tax (PIT) due may not, as a general rule, exceed 60 per cent of the PIT taxable base, subject to certain exceptions. This rule is designed to prevent the combined burden of both taxes from becoming excessive or confiscatory in situations where the taxpayer’s income is not sufficient to meet the tax charge without liquidating assets. A similar joint cap applies under the Temporary Solidarity Tax on Large Fortunes, which aggregates all three taxes WT, PIT and the new solidarity tax, as explained when Form 718 for that tax was approved.
On the literal wording of the Wealth Tax Act, this 60 per cent cap was reserved to taxpayers resident in Spain who are taxed on a worldwide basis. This interpretation has been upheld in the past by the Central Economic Administrative Court (TEAC), for instance in its resolution of 20 October 2025 (00/11005/2022). In that decision, the TEAC expressly limited the benefit of the cap to resident taxpayers and excluded non-residents, who are only taxed on assets located in Spain.
However, both the Balearic court and now the Supreme Court have opened the door for non-resident taxpayers to benefit from the wealth tax shield in comparable circumstances.
1. The 60 per cent cap and its practical effect
The application of the 60 per cent limit on the combined WT and PIT burden can significantly reduce the WT payable by an individual. The reduction is subject to a maximum of 80 per cent of the gross WT due. In the case of the Belgian taxpayer considered by the Balearic court, the combined calculation, which included PIT paid in Belgium, led to a reduction of WT in Spain by the maximum 80 per cent.
At that time, the reach of the Balearic judgment was uncertain because the case had been appealed to the Supreme Court. The key question was whether the benefit of the cap could be extended to non-residents consistently with Spanish domestic law and European Union (EU) law on the free movement of capital.
In its judgments of 29 October 2025 (ECLI:ES:TS:2025:4849) and 3 November 2025 (ECLI:ES:TS:2025:4846), the Supreme Court has confirmed the approach taken by the Balearic court and has held that the wealth tax shield must be available not only to residents but also to non-resident taxpayers.
2. Free movement of capital and discrimination between residents and non-residents
The Supreme Court starts its reasoning by identifying a difference in treatment between residents and non-residents. Under the Wealth Tax Act, only resident taxpayers could apply the 60 per cent joint limit, while non-residents were excluded from that relief, even though they may be subject to WT on substantial Spanish assets.
According to the Court, this difference in treatment discourages investment in Spain by non-residents and therefore restricts the free movement of capital, which is protected by article 63 of the Treaty on the Functioning of the European Union (TFEU). The Court then recalls that, under article 65 TFEU and the case law of the Court of Justice of the European Union (CJEU), such a restriction may be compatible with EU law only if:
- It concerns situations that are not objectively comparable, in light of the purpose and content of the rule at issue, or
- It is justified by overriding reasons in the public interest and is proportionate.
In the cases decided by the Supreme Court, the focus lies on the first element, the analysis of objective comparability. No public interest justification was advanced by the tax authorities.
3. Objective comparability of residents and non-residents for wealth tax purposes
The core of the Supreme Court’s reasoning concerns whether resident and non-resident WT taxpayers are in objectively comparable situations for the purposes of the 60 per cent cap.
A potential argument against comparability is the asymmetry between the bases of the different taxes involved. Wealth Tax, in the case of non-residents, is levied only on assets located in Spain, while the foreign PIT of a non-resident (for example, Belgian income tax) may tax the taxpayer’s worldwide income. On the face of it, combining a Spanish tax that covers only domestic assets with a foreign tax that applies on a worldwide basis may seem conceptually asymmetric.
The Supreme Court nevertheless considers that this asymmetry does not prevent comparability. It stresses that the relevant comparison is between WT taxpayers as such and the burden that WT imposes in relation to their income, not between different income tax systems. Residents and non-residents are both subject to WT on their Spanish wealth, and the nature and objective of the tax are the same in both cases. As the Court puts it in substance, whether the taxpayer is subject to WT on a personal or real basis does not alter the inherent nature or purpose of the tax.
In support of its conclusion, the Supreme Court refers to the parallel drawn by the CJEU in its judgment of 3 September 2014 (ECLI:EU:C:2014:2130) regarding the extension of regional tax benefits in Spanish inheritance and gift tax to non-residents. In that case, the CJEU held that non-residents in comparable situations could not be excluded from regional tax reliefs solely on the basis of residence.
4. Information asymmetries and EU residents
The Supreme Court also acknowledges that there may be situations in which residents and non-residents are not objectively comparable, namely where the Spanish tax authorities do not have sufficient information to verify the foreign income tax paid by non-resident taxpayers.
However, the Court emphasises that this argument is not valid where the non-resident is resident in another EU Member State. Within the European Union, there are mechanisms for administrative cooperation and exchange of information that allow the Spanish tax authorities to obtain the necessary data to check the correct calculation of the combined WT and foreign PIT burden.
Consequently, for non-residents who are resident in another EU Member State, the Supreme Court considers that there is no practical obstacle to applying the 60 per cent cap and that the principle of free movement of capital requires that they be treated in a comparable manner to WT residents in Spain. The risk of confiscatory taxation, which the cap is designed to prevent, exists equally for residents and non-residents and cannot be ignored in the latter case.
5. Lack of guidance on mechanics, but clear requirement to extend the shield
One limitation of the Supreme Court judgments is that they do not provide detailed guidance on the practical mechanics of applying the wealth tax shield to non-residents. The Court confines itself to stating that habitual residence in Spain or abroad cannot justify differential treatment whereby the article 31 WT cap is granted only to residents. It explicitly qualifies this difference in treatment as discriminatory and unjustified.
The judgments therefore remove the discriminatory element but leave it to the tax authorities and, ultimately, to future practice and possibly legislative amendment to determine the precise calculation rules.
Nonetheless, when read together with the Balearic court’s approach, which the Supreme Court endorses, the implication is clear. The 60 per cent cap in article 31 WT should be extended to non-resident taxpayers, so that the WT due on assets located in Spain can be reduced by reference to the personal income tax paid in the taxpayer’s State of residence. The calculation requires a case-by-case analysis of the taxpayer’s overall position and may reveal situations where WT has been overpaid in past years.
6. Retroactive claims and interaction with the Tax on Large Fortunes
The new case law will influence the assessment of WT in future years, but it also has implications for prior tax periods that are still open. In principle, taxpayers should be able to seek a refund of WT unduly paid by filing requests to rectify self-assessments that are within the four-year statute of limitations, which in practice would typically include at least WT for 2021 onwards.
For earlier years where limitation periods have expired, there may be scope, at least in theory, to argue for the nullity of certain assessments by invoking the concept of radical nullity under article 217.1.a) of the General Tax Law 58/2003 of 17 December. Whether such arguments will succeed in practice is more uncertain and will likely depend on the specific circumstances and on how courts view the severity of the infringement of EU law.
The same reasoning should extend to the Temporary Solidarity Tax on Large Fortunes, in force since 2022. Given its complementary nature vis à vis WT and PIT, and its similar joint limit rules, the extension of the wealth tax shield to non-residents logically implies applying an analogous cap that takes into account PIT and WT when computing the solidarity tax due.
All of the above is subject to potential legislative changes to the Wealth Tax Act and the regulations governing the Tax on Large Fortunes. The legislature could codify the Supreme Court’s approach or opt for alternative mechanisms to eliminate the discrimination against non-residents while maintaining the coherence of the tax system.
7. Interaction with constitutional review of Wealth Tax
Finally, it should be borne in mind that the constitutionality of Wealth Tax itself is under review. An appeal of unconstitutionality against WT was admitted by the Spanish Constitutional Court in April 2021, and a decision is expected during the first quarter of 2026.
Recent case law from the Constitutional Court has tended to limit the temporal effects of findings of unconstitutionality, usually confining them to tax returns that were already under challenge on the date of the judgment. If that practice is followed in this case, only taxpayers who have initiated proceedings before the Constitutional Court’s ruling would be able to benefit from any eventual declaration adverse to WT.
In this context, the Supreme Court’s extension of the wealth tax shield to non-resident taxpayers offers an immediate and concrete avenue for relief, particularly for EU resident individuals with significant Spanish assets. It also underscores the strategic importance of reviewing past assessments and considering timely challenges where the combined burden of WT, PIT and the solidarity tax may have exceeded the limits permitted by EU law and by the internal logic of the Spanish tax system.
