Spain's Supreme Court extends the combined personal income and wealth tax limit to non-residents

The Supreme Court has confirmed in its judgments of 29 October and 3 November 2025 that European Union law is infringed if only Spanish-resident Wealth Tax (WT) taxpayers are allowed to reduce their tax liability in light of the taxation of their income under the Spanish Personal Income Tax (PIT).

Regulatory context and discrimination identified

Article 31 of the Wealth Tax Act establishes that the combined tax liability of WT and SpanishPIT cannot exceed 60% of the PIT taxable base. This provision functions as a tax shield, preventing the combined tax burden on income and wealth from becoming confiscatory. When this threshold is exceeded, the WT liability may be reduced to reach the limit, with a maximum reduction cap of 80%.

Until now, this protection only benefited those taxed on a personal liability basis (tax residents in Spain who declare their worldwide assets), excluding taxpayers taxed on a real liability basis (non-residents who are only taxed on assets located in Spanish territory).

Supreme Court doctrine: comparable situations

The core of the reasoning in the judgments lies in the analysis of comparability between both categories of taxpayers. The Supreme Court concluded that residents and non-residents are in an objectively comparable situation as regards the object and purpose of the WT and that it is irrelevant that some are taxed on a personal basis and others on a real basis.

The Supreme Court endorsed the approach previously adopted by the High Court of Justice of the Balearic Islands in its judgment of 1 February 2023, which had already recognised this right for a Belgian citizen. The key point is that the reduction of the WT liability for non-residents is to be calculated by taking into account the personal tax burden borne in their state of residence, even where this is not Spanish PIT.

The court rejects the argument that the tax authorities lack the means to verify the taxation of non-residents, noting that there are information‑exchange mechanisms with other Member States that allow verification of the proper assessment of the taxes concerned. Accordingly, the anti‑confiscatory protection must apply equally to residents and non-residents.

Territorial and temporal scope of the doctrine

This case law produces both prospective and retroactive effects, affecting future tax years as well as non-statute-barred previous years (at least from 2021 onwards). Furthermore, it covers both residents in the European Union and residents in third countries, given that it is based on article 63 of the Treaty on the Functioning of the European Union (TFEU), which prohibits restrictions on capital movements between Member States and between Member States and third countries.

By analogy, this same reasoning should apply to the Wealth Solidarity Tax, in force since 2022, whose combined liability limit with PIT and WT is regulated identically. Non-residents should likewise be able to benefit from this combined limit.

Opportunities for recovery of amounts unduly paid

Non-resident taxpayers who filed their WT returns in accordance with the literal wording of the law may now request the rectification of non-statute-barred self-assessments and the corresponding refund of undue payments.

Osborne Clarke comment

This Supreme Court doctrine marks a turning point in the tax treatment of non-resident taxpayers, by correcting a regulatory asymmetry that for years has penalised foreign investment in Spain. The judgments reinforce compliance with the fundamental freedoms laid down in the TFEU and, in particular, the prohibition on establishing restrictions on the free movement of capital, eliminating the existing discrimination between residents and non-residents in matters of wealth taxation.

The case law lays the foundations for a necessary legislative reform that expressly incorporates this extension of the combined limit to non-residents, as occurred following the Court of Justice of the EU judgment of 3 September 2014, which required the modification of the Inheritance and Gift Tax regulations to eliminate similar discrimination.

We recommend that non-resident taxpayers with assets in Spain review their WT self-assessments for recent years to assess the potential tax savings arising from the application of the combined limit and, where appropriate, initiate the corresponding rectification procedures. The economic impact can be significant, especially for those taxpayers with substantial real estate assets in Spain and substantial income in their country of residence.