Spanish Tax on Large Fortunes raises over €600 million in revenue and reduces Madrid’s tax privileges

Since 2011, Madrid has enjoyed a significant tax advantage over other Spanish regions by effectively eliminating its regional wealth tax, helping to attract wealthy individuals from across the country. To reduce these differences, the Spanish government introduced the Solidarity Tax on Large Fortunes (ITSGF) in 2022, establishing a minimum tax on taxable wealth above €3.7 million, regardless of where taxpayers live in Spain.

In this paper, Francisco García-Rodríguez, Dmitry Petrov, and Alice Sodano use administrative data covering 2016–2023 to examine the effects of the new tax. They examines whether the reform has increased tax revenue, reduced Madrid’s advantage in attracting wealthy residents, and encouraged taxpayers to find other ways to reduce their tax bills.

KEY FINDINGS

• Combined revenue from the two wealth taxes rose from €1.35 billion in 2021 to €1.96 billion in 2023. Much of this increase came from Madrid, where wealthy taxpayers paid around €500 million annually.
• In 2023, for the first time since 2016, Madrid experienced a net outflow of wealthy taxpayers to other regions. This change in taxpayer mobility suggests that Madrid’s tax advantage may be weakening, although more years of data are needed to confirm this trend.
• However, wealthy taxpayers have other ways to reduce their tax bills. In Madrid, taxpayers affected by the new tax increased their holdings of tax-exempt assets, particularly shares in businesses that are exempt from wealth tax. This change is associated with an estimated €73 million in lost tax revenue. In Andalusia, the elimination of the regional wealth tax was accompanied by an increase in reported taxable wealth and a reduction in deductible debts, suggesting that taxpayers also change how they report their wealth in response to tax incentives.
• Partial harmonisation leaves gaps. Extending the minimum tax to taxpayers with taxable wealth between €700,000 and €3.7 million could further reduce tax differences between regions and incentives to move for tax reasons. Eliminating tax exemptions for business assets could also limit opportunities to reduce taxes by changing the composition of taxable wealth. According to the study’s simulations, removing these exemptions could raise combined revenue from both wealth taxes to nearly €5 billion, more than double its 2023 level.

KEY AUTHORS

• Francisco García-Rodríguez, Universidad de Alcalá and EQUALITAS
• Dmitry Petrov, Universidad de Alcalá and EQUALITAS
• Alice Sodano, Paris School of Economics and World Inequality Lab