Published: June 23, 2026
I. INTRODUCTION AND CONSTITUTIONAL BASIS
The Wealth Tax (hereinafter“IP”) coexists in our tax system with the Individual Income Tax (hereinafter“IRPF”), which in many cases taxes identical forms of wealth. This overlap regarding the same taxpayer and the same economic basis creates an obvious conflict with the principle of economic capacity and the prohibition on confiscatory taxation enshrined in Article 31.1[1] of the Spanish Constitution (hereinafter“CE”).
In this context, some legal scholars have pointed out that a wealth tax, if it lacks corrective mechanisms, could become confiscatory when it exceeds the returns generated by the taxed assets. Precisely to counteract this effect, Article 31 of Law 19/1991, of June 6, on the Wealth Tax (hereinafter,“LIP”) establishes a quantitative limit that prevents the sum of the total wealth tax liability and the individual income tax liabilities from exceeding a certain percentage of the taxpayer’s general tax base plus the savings tax base for individual income tax purposes.
The axiological basis for this limitation is, therefore, twofold: to avoid confiscatory effects and to ensure that the IP fulfills its extrafiscal function of taxing unproductive wealth holdings, without becoming a capital tax that absorbs income.
II. TECHNICAL STRUCTURE OF THE JOINT BORDER (ART. 31 LIP)
Article 31 of the LIP, in its consolidated version, sets forth a two-phase limitation mechanism that operates on two levels: (i) it establishes the substantive rule for coordination between the IP and the IRPF for taxpayers subject to personal liability[2]; (ii) it regulates the special provision applicable to members of a household who have opted for joint filing for personal income tax purposes[3].
11.1 The General Rule: The 60% Cap and the Reference Base
Article 31.1 of the LIP provides that the sum of the total IP tax liability and the state and regional personal income tax liabilities may not exceed 60% of the sum of the general and savings tax bases for personal income tax.
The choice of personal income tax bases as a benchmark is not neutral. Compared to other alternatives—such as the tax liability or gross income—it allows for the measurement of the overall tax burden in relation to a broad indicator of economic capacity, thereby approximating the concept of the taxpayer’s gross economic capacity.
The mechanism operates in two phases:
- First, the joint upper limit is calculated:
Aggregate maximum limit = 60% × (General taxable base + Adjusted savings taxable base, hereinafter“ReferenceBase”)
- Second, this limit is compared with the sum of the property tax (IP) and personal income tax (IRPF) liabilities. If this sum does not exceed the limit, no adjustment is made. Conversely, if the aggregate tax burden exceeds the limit, the excess is corrected by reducing the total property tax liability.
The uniqueness of the system lies in the fact that the adjustment falls exclusively on the IP. The personal income tax rate remains unchanged and serves as a fixed reference value, with Article 31.1.c) of the LIP assigning the IP the role of correcting the excess.
11.2 Adjustment of the Reference Base (Art. 31.1.a LP)
Subsection (a) of Article 31.1 of the LIP introduces two (2) corrections to the Reference Base intended to prevent distortions in the calculation of the aggregate limit.
The first consists of excluding from the taxable savings base the portion consisting of capital gains and losses where the net gain stems from transfers of assets acquired or improved more than one (1) year prior. The reason is that these gains, due to their extraordinary and non-recurring nature, would artificially increase the Reference Base in the tax year of the transfer. For consistency, the personal income tax (IRPF) payments corresponding to that portion of the savings base are also not included, thereby symmetrically adjusting both terms of the comparison.
The second adjustment works in the opposite direction, incorporating into the Tax Base certain dividends and profit shares provided for in the twenty-second transitional provision of the Corporate Income Tax Law[4]. The purpose is to prevent income benefiting from a preferential or tax-exempt regime from artificially reducing the Tax Base and, furthermore, resulting in a reduction of the corporate income tax liability. Although it has little practical relevance today due to its transitional nature, this provision clearly reflects the anti-avoidance purpose of the statute.
11.3 Exclusion of Non-Income-Producing Assets (Art. 31.1.b LIP)
Subsection (b) of the first paragraph is probably the most complex provision of Article 31 of the LIP and one of the most controversial. It establishes that, for purposes of the joint limit, the portion of the Property Tax (IP) liability corresponding to assets or rights that, by their nature or intended use, are not capable of generating income subject to personal income tax (IRPF) shall not be included in the calculation. The rationale behind this exclusion lies in the very structure of the limit: if certain assets do not contribute to the calculation of the personal income tax reference base, the portion of the property tax liability linked to them should not be included either. Otherwise, wealth tax liability could be reduced by taking into account assets that are unrelated to the income used as a benchmark.
In operational terms, the exclusion requires calculating the portion of the IP attributable to non-productive elements—by applying a proportional allocation to the IP tax base—and adjusting that amount before including it in the overall calculation.
11.4 The Guaranteed Minimum and the Special Provisions for Joint Taxation (Art. 31.1.c and Art. 31.2 of the LIP)
Subsection (c) of the first paragraph sets forth the system’s closing rule. When the sum of the personal income tax (IRPF) and property tax (IP) liabilities exceeds the 60% limit of the Reference Base, the excess is corrected by reducing the total property tax liability. However, this reduction may not exceed 80% of the total property tax liability, which means that the taxpayer must, in any case, pay at least 20% of the total tax liability originally self-assessed. This limit constitutes a genuine revenue floor intended to preserve the substantive nature of the IP and prevent high personal income tax (IRPF) rates from completely offsetting wealth taxation.
Calculation of the IP premium after the reduction:
- Maximum reduction = 80% × Original IP rate
- Reduced IP fee = max (IP fee − Excess; 20% × original IP fee)
⟹ Minimum IP fee = 20% × Original IP fee (minimum threshold)
An additional special case arises when members of a household choose to file a joint income tax return. In such cases, Article 31.2 of the Personal Income Tax Law (LIP) establishes two rules: (i) an aggregation rule, under which the limit is calculated by comparing the joint personal income tax liability with the sum of the full property tax liabilities corresponding to all members of the family unit; and (ii) a pro-rata rule, whereby the resulting reduction is distributed among the taxpayers in proportion to their respective individual IP tax bases. This solution reflects the personal and individual nature of the tax, which remains in effect even when personal income tax is filed jointly.
The interaction between this rule and the 20% threshold has a significant consequence: the minimum threshold applies to each taxpayer’s individual total tax liability and not to the combined total tax liability. Therefore, each member of the household required to pay the IP must pay, at a minimum, 20% of their own total tax liability, regardless of the overall excess calculated for the household.
IV. REGULATIONS IN THE AUTONOMOUS COMMUNITIES
The IP is a tax delegated to the Autonomous Communities (hereinafter“CCAA”) pursuant to Article 25.1.b of Law 22/2009[5], which allows them to regulate certain essential elements of the tax, including the tax-exempt threshold, the tax rate, and deductions and tax credits. However, the aggregate limit provided for in Article 31 of the IP Law remains a matter of national jurisdiction and cannot be modified by regional regulations. This circumstance has taken on particular significance in those AAs that, in certain fiscal years, approved general tax credits of 100% of the tax liability—as occurred in Madrid and Andalusia—as it has sparked debate regarding the effective scope of regional regulatory powers in the area of property taxation.
V. CONCLUSIONS
Article 31 of the LIP establishes a coordination mechanism between the IP and the IRPF designed to adjust the combined tax burden resulting from both taxes. Its purpose is to prevent the cumulative taxation of income and wealth from reaching levels that are potentially incompatible with the principle of non-confiscation; to this end, it establishes a general limit of 60% on the Reference Base calculated in accordance with the provisions of this article.
However, the system is not designed solely to protect taxpayers from excessive taxation, but also to preserve the autonomy and effectiveness of the IP. This objective is reflected in the limitation of the tax reduction to 80% of the total tax liability, such that the taxpayer must, in any case, pay a minimum tax equivalent to 20% of the initially assessed tax liability.
For their part, the exclusions provided for in Article 31 of the LIP are based on the logic of internal consistency within the limit itself. By excluding certain unproductive assets and certain types of income that are exempt from actual personal income tax (IRPF), the system ensures that the reduction in the IP tax liability is not determined based on elements that do not contribute to the formation of the economic capacity used as a reference parameter. In this way, the mechanism preserves the correspondence between the measure used to calculate the combined tax burden and the wealth and income components that are actually relevant for these purposes.
If you need help or advice regarding whether you need to file a corporate income tax return or an individual income tax return, at Gentile Law we have a team of experts in this field ready to assist you.
Contact us:
Marta Gavín Hermosilla
Corporate Legal Advisor at Gentile Law
martagavin@gentile.law
+34 604510566
[1]Article 31.1 of the Spanish Constitution: Everyone shall contribute to the financing of public expenditures in accordance with their economic capacity through a fair tax system based on the principles of equality and progressivity, which shall in no case be confiscatory in nature.
[2] Article 31.1 of the LIP
[3] Article 31.2 of the LIP
[4] See Transitional Provision No. 22 of Law 27/2014, of November 27, on Corporate Income Tax.
[5] See Article 25 of Law 22/2009, of December 18, regulating the financing system for the Autonomous Communities under the general regime and Cities with a Statute of Autonomy.