How the Wealthy Avoid the Millionaire Tax!

Wealthy individuals in Spain have been adept at circumventing the millionaire tax, leading to lower-than-expected revenues for the government.

Officially known as the temporary tax on high-net-worth individuals (impuesto de solidaridad a las grandes fortunas) or the solidarity tax, this levy targets individuals with assets exceeding €3 million rather than focusing on income.

Initially introduced by the left-wing coalition to alleviate the economic strain caused by rising living costs, the tax has failed to meet revenue projections. By September 2023, only €623 million had been collected, a significant shortfall from the anticipated €1.5 billion. This underperformance can partly be attributed to the tax’s narrow scope, affecting just 0.1 percent of taxpayers in Spain, totalling 12,010 individuals.

On average, each taxpayer subject to the millionaire tax paid €52,000, which is supplementary to the wealth tax (impuesto patrimonio). Despite being labeled as temporary; doubts have arisen regarding its longevity. Consequently, many affluent Spaniards are exploring methods to minimize their tax liability, particularly concerning the millionaire tax and overall wealth tax burden.

One prevalent strategy involves leveraging donations to family members, effectively reducing the taxable base and evading the millionaire tax. Consultancy firms specializing in tax matters have witnessed a surge in requests for assistance in orchestrating such transactions. Additionally, inheritance agreements in regions offering deductions provide further avenues for tax optimization.

Venture capital and private equity investments have emerged as another avenue for the wealthy to mitigate tax exposure. The establishment of such entities has increased by 38 percent since the introduction of the millionaire tax, according to Spain’s National Securities Market Commission. Tax advantages, including exemptions on a significant portion of investments, make this strategy appealing to high-net-worth individuals.

Tax experts anticipate a continued uptick in both donation schemes and venture capital investments as long as the solidarity tax remains in effect. With the government yet to provide clarity on the tax’s future, these strategies are likely to persist, shaping the tax landscape for affluent individuals in Spain.