In a landmark development for international taxpayers, the Spanish Supreme Court has confirmed that non-resident taxpayers may benefit from the Spanish Wealth Tax “tax shield”, a mechanism previously applied only to Spanish residents. This change can significantly reduce wealth tax exposure for individuals holding assets in Spain.

What Is the Wealth Tax “Tax Shield”?

Spanish Wealth Tax (Impuesto sobre el Patrimonio) is subject to a joint limitation rule designed to prevent excessive or confiscatory taxation. Under this rule:

• The combined amount of Wealth Tax and Personal Income Tax cannot exceed 60% of the taxpayer’s taxable income, subject to certain exceptions.
• The maximum reduction of Wealth Tax under this mechanism is capped at 80% of the tax due.

The rationale is straightforward: taxpayers should not be forced to sell assets simply to pay wealth-related taxes when their annual income is insufficient.

A similar joint limitation applies to the Temporary Solidarity Tax on Large Fortunes, which operates alongside Wealth Tax and Personal Income Tax.

The Problem for Non-Residents

Historically, Spanish tax law restricted this tax shield to Spanish tax residents, even though:

• Residents are taxed on their worldwide assets, while
• Non-residents are taxed only on assets located in Spain.

This distinction was upheld by the Spanish tax authorities and administrative courts, effectively excluding non-residents from the benefit of the tax cap.

The Turning Point: Supreme Court Rulings (October–November 2025)

The issue reached the Spanish Supreme Court following a case involving a Belgian taxpayer who sought to apply the tax shield by taking into account income tax paid in Belgium.

In its judgments of 29 October and 3 November 2025, the Supreme Court ruled decisively in favor of the taxpayer, confirming that:

• Denying the tax shield to non-residents constitutes unjustified discrimination, and
• Such discrimination violates EU law on the free movement of capital.

The Court held that resident and non-resident Wealth Tax taxpayers are in a comparable situation, regardless of whether taxation is based on worldwide assets or only Spanish-situated assets. What matters is the nature and objective of the tax, not the taxpayer’s place of residence.

EU Law and Comparability

The Supreme Court emphasized that restricting the tax shield makes Spain less attractive to non-resident investors, thereby infringing EU principles.

It rejected the argument that non-residents are non-comparable due to informational limitations, noting that:

• Within the EU, tax information exchange mechanisms allow Spanish authorities to verify income and tax paid abroad.
• Confiscatory taxation must be avoided equally for residents and non-residents.

As a result, non-EU informational concerns do not apply to taxpayers resident in other EU Member States.

Practical Impact for Taxpayers

This interpretation allows non-resident taxpayers to:

• Reduce Spanish Wealth Tax by considering income tax paid in their country of residence, and
• Potentially reach the maximum 80% reduction in Wealth Tax liability.

The Supreme Court did not provide detailed procedural guidance, so each case must be analysed individually, particularly regarding:

• The nature of foreign income,
• Taxes effectively paid abroad, and
• Supporting documentation.

Retroactive Claims and Future Years

This case law applies to:

• Future tax years, and
• Open tax years not yet time-barred.

In practice, this means taxpayers may request a rectification of Wealth Tax self-assessments from 2021 onwards, as Spain’s statute of limitations is four years.

For earlier years, while standard limitation rules may apply, there may still be scope for claims based on full nullity under Spanish General Tax Law, depending on the circumstances.

The same reasoning should also apply to the Tax on Large Fortunes, in force since 2022, given its complementary structure and nearly identical joint-limit rules.

What Happens Next?

While these Supreme Court decisions eliminate discriminatory treatment, legislative amendments may still follow, either to formalise the tax shield’s extension to non-residents or to introduce alternative mechanisms.

Additionally, a pending constitutional challenge to Spanish Wealth Tax is expected to be resolved in early 2026. However, based on recent Constitutional Court practice, any declaration of unconstitutionality would likely benefit only taxpayers who had already challenged their assessments before the ruling.

Key Takeaway

For non-resident individuals holding Spanish assets, this development represents a major planning opportunity. The extension of the tax shield can materially reduce Wealth Tax exposure and may justify:

• Revisiting past filings, and
• Reassessing future tax strategies involving Spanish real estate or investments.

Given the technical and case-specific nature of this relief, professional advice is essential to ensure correct application and maximise potential savings.

If you are a non-resident individual with assets in Spain  and would like to assess how these Supreme Court rulings may affect your Spanish Wealth Tax or Tax on Large Fortunes, our team can assist you. Contact us here, or write to us at info@samirlaw.com