The luxury real estate market in Spain, and particularly in Madrid, has undergone significant changes in recent years. The recent introduction of the tax on large fortunes has generated a series of expectations and concerns among buyers and investors. At Promora we help you understand how this new regulation affects the dynamics of buying luxury homes in Madrid, offering a comprehensive view of the current context.
What is the wealth tax?
The new tax on large fortunes, also called the Temporary Solidarity Tax on Large Fortunes, established by Law 38/2022, is a tax on the net wealth of individuals above certain thresholds. It applies to assets whose taxable base exceeds EUR 3 million. This tax may affect those looking to buy luxury homes in Madrid, as the assets involved are usually above these thresholds. It is structured as follows: 1.7 per cent for assets between 3 and 5.3 million euros, 2.1 per cent for assets between 5.3 and 10.6 million euros and 3.5 per cent for assets above 10.6 million euros.
The tax base is calculated in accordance with the Wealth Tax regulations, which include an exempt minimum of 700,000 euros. This means that only wealth in excess of this amount is taxed, and taxpayers must file a tax return if their tax liability, after applying the corresponding deductions, results in a taxable amount. In this context, those looking to buy luxury homes in Madrid may encounter additional tax implications if their wealth is above these levels.
It is important to note that this tax is of a state nature, but the autonomous communities have the ability to set their own tax rates and deductions. This can influence the decisions of those planning to buy luxury homes in Madrid, as the tax burden can vary depending on the location of the estate.
Taxation of large fortunes in the Community of Madrid
In order to try to neutralise the negative effect of the market for the purchase of luxury homes in Madrid, the Assembly of the Community of Madrid has temporarily modified the Wealth Tax rebate due to the Temporary Solidarity Tax of the Great Fortunes. While this tax is in force, affected taxpayers will pay Wealth Tax with a variable rebate, instead of the general rebate. Those who are not affected will continue to pay no wealth tax.
This measure, applied from 1 January 2023, adjusts the regional rebate to the difference between the full amount of Wealth Tax and the amount of the Temporary Solidarity Tax on Major Fortunes.
Impact on luxury shoppers
The tax on large fortunes has generated a climate of uncertainty in the luxury real estate market in Madrid. Many potential buyers are concerned that this tax burden will result in a considerable loss of wealth. Even so, the market is strong and demand for luxury property in Madrid remains strong. This is due to factors such as the quality of life, cultural offerings and job opportunities that the city provides.
The concern of individuals with the potential to invest in luxury real estate about this tax has prompted them to consider making this investment in countries with more favourable tax systems. This move has led to a decline in the luxury property market in Spain, as some investors seek to diversify their portfolio in international markets where the tax burden is less onerous.
Reaction of the real estate market
Despite concerns about the impact of the new tax, the luxury real estate market in Madrid has proven to be resilient. The perception of luxury properties as safe havens for investment remains a powerful attraction. Many people interested in buying luxury property in Madrid see these properties not only as a place to live, but also as a way to protect their wealth in an uncertain economic climate.
However, it is essential to bear in mind that the introduction of the tax may lead to adjustments in owners’ sales expectations. In a market that could become more competitive, it is possible that some investors may find opportunities at more attractive prices, although they should always consider the location, quality of construction and specific characteristics of each property.
Market response to the new tax
The adaptability of the luxury home buying market in Madrid is remarkable. Over the years, this sector has faced various crises and challenges, from economic changes to tax reforms. The recent introduction of the wealth tax could be seen as a challenge, but also as an opportunity for the market to reshape itself.
More thorough cost-benefit analysis in purchasing decisions is leading many investors to look for opportunities more consciously. This does not mean that the market is cooling down; on the contrary, the search for information and expert advice is becoming even more crucial for those seeking to maximise their investment.
Promora: Your ally for buying luxury real estate in Madrid
In this complex context, having a strategic ally is essential. Promora is positioned as the best option for those who wish to buy luxury homes in Madrid. Our team of experts in the luxury real estate market is ready to offer you personalised advice at every step of the process.
We have an in-depth knowledge of the particularities of the market, which allows us to identify the most attractive properties adapted to your needs. If you are considering buying a luxury property in Madrid, do not hesitate to contact us. We are here to make your real estate dreams come true and offer you the best opportunities in the luxury market.
