Wealth Tax in the Balearic Islands: €3 Million Tax-Free Allowance Also for Non-Residents

In short: since 2024 the Balearic Islands have set a €3 million tax-free allowance in Wealth Tax, compared with €700,000 under the State rules. A non-resident can apply it if the Balearic Islands are the autonomous region where the highest value of their assets and rights in Spain is located, and they apply the Balearic rules in their return (form 714). If they did not file on time, there are good arguments for exercising that right through a late return or a rectification request, as long as the tax year is not time-barred.

The recent increase of the tax-free allowance (mínimo exento) in Wealth Tax for non-residents in the Balearic Islands to €3,000,000, in force since 1 January 2024 under Ley 12/2023 (Law 12/2023), raises important technical and tax issues, both for taxpayers subject to tax on their worldwide net wealth (unlimited tax liability) and for non-residents holding assets located in the Balearic Islands. This article provides an in-depth analysis of how this measure fits into the legal framework, how it is coordinated with State legislation, whether non-residents can apply it through the tax-option mechanism, and the formal requirements to be met in order to secure its application.

1. State and regional rules

The general framework of Wealth Tax is set out in Ley 19/1991, de 6 de junio, del Impuesto sobre el Patrimonio (Wealth Tax Act), whose article 28.Dos provides for a tax-free allowance of €700,000 applicable on a default basis. In addition, there is an exemption of up to €300,000 for the main residence, pursuant to article 4.Nueve of Law 19/1991. That exemption requires the taxpayer to have actually and permanently lived in the home during the tax year, so in practice it does not usually apply to a non-resident’s home in Spain (Binding Ruling V2384-17 of 19 September 2017). However, under article 47 of Ley 22/2009, de financiación de las Comunidades Autónomas (Law 22/2009 on the financing of the autonomous regions), the autonomous regions have regulatory powers over the tax-free allowance, tax rates and applicable deductions.

By means of Ley 12/2023, de 29 de diciembre, de presupuestos generales de la Comunidad Autónoma de Illes Balears para 2024 (Law 12/2023 of 29 December on the general budget of the Autonomous Region of the Balearic Islands for 2024) (BOIB no. 176, of 30 December 2023), the regulatory power provided for in article 47 of Law 22/2009 has been exercised, establishing a regional tax-free allowance of €3,000,000 in Wealth Tax, applicable to taxpayers whose habitual residence is in the Balearic Islands.

2. Can non-residents apply the Balearic tax-free allowance?

Taxpayers subject to tax on a real-obligation basis (limited tax liability), that is, persons who are not tax resident in Spain but hold assets located in Spanish territory, are taxed in Spain on the value of those assets, without prejudice to the recognition of certain rights that allow them to apply either the State rules or the rules of the autonomous region where the highest value of their assets and rights in Spain is located.

That right is set out in the Fourth Additional Provision of Law 19/1991, which, in its current wording, grants all non-resident taxpayers, regardless of their country of residence, the possibility of applying the regional rules of the territory where the greater part of the value of their assets or rights located in Spain is situated.

3. Substantive and formal requirements

In order to apply the regional tax-free allowance, in this case the €3,000,000 allowance in the Balearic Islands, the non-resident must have filed the Wealth Tax self-assessment (form 714). The right to apply the regional rules must be expressly exercised by making the corresponding selection on the form.

This obligation applies even where the result is zero, since the exercise of the right is formalised by filing the self-assessment, not by the existence of an effective tax liability.

4. An exercisable right, not a tax option

In recent years, the legal characterisation of the regional regime applicable to non-residents has undergone a significant evolution. The tax authorities had been treating it as a tax option under article 119.3 of the Ley General Tributaria (General Tax Act, LGT), which can only be exercised within the filing period; the courts, by contrast, regard it as a right of the taxpayer and not a mere option.

The Supreme Court, in its judgment 1404/2021 of 30 November (appeal 4464/2020; ECLI:ES:TS:2021:4394), held that one can only speak of a tax option where the law offers different and mutually exclusive regimes and the taxpayer freely chooses between them; in that case, concerning the offset of Corporate Income Tax losses in a late return, it concluded that this was a right. Applying that test, the National Court (Audiencia Nacional), in its judgment of 21 June 2024 (appeal 796/2023; ECLI:ES:AN:2024:3299), annulled a resolution of the Central Economic-Administrative Tribunal (TEAC) and held that the Second Additional Provision of the Inheritance and Gift Tax Act does not regulate an option but a genuine right of non-residents to apply the regional rules, exercisable without the limitations of article 119.3 LGT.

Although these rulings concern Inheritance and Gift Tax and Corporate Income Tax, in our view the same reasoning can be transferred to Wealth Tax, given the structure of its Fourth Additional Provision. This means that the right to apply the regional rules is not conditional on compliance with the voluntary filing deadline, as would be the case with a genuine option. Consequently, the exercise of that right may validly be made by filing a late self-assessment or a rectification request, provided that the general four-year limitation period laid down in article 66 of the LGT has not elapsed.

This change in the legal paradigm strengthens the position of non-resident taxpayers, who may apply the more favourable regional regime, such as the €3,000,000 tax-free allowance in force in the Balearic Islands, without its exercise being limited by the expiry of the ordinary filing deadline, provided that the applicable substantive and formal requirements are met and the taxpayer acts within the limitation period.

5. Filing deadline and what happens if no return was filed

The ordinary deadline for filing form 714 for the 2025 tax year ended on 30 June 2026. However, provided that the limitation period (four years, under article 66 of the LGT) has not elapsed, the feasibility of filing a late self-assessment or a rectification request allowing the regional tax-free allowance to be applied could be considered, the allowance being understood as an exercisable tax right and not as an option subject to the limits of article 119.3 of the LGT.

Failure to file may result in the automatic application of the State regime, with the €700,000 tax-free allowance. However, depending on the circumstances of each case, it would be possible to examine individually whether the exercise of the right can be evidenced by means of a subsequent regularisation without jeopardising the taxpayer’s tax position. The appropriate strategy will depend on the taxpayer’s tax profile, the location of their assets and the returns filed.

6. A note for large fortunes: the Solidarity Tax

The Balearic allowance does not apply to the Temporary Solidarity Tax on Large Fortunes (Law 38/2022), extended indefinitely by Royal Decree-law 8/2023 and still in force in 2025 and 2026, which is governed by State rules and to which non-residents are also subject on their assets located in Spain. That tax applies its own €700,000 tax-free allowance, charges tax on the net taxable base above €3,000,000 and allows the Wealth Tax actually paid to be deducted. For high-net-worth taxpayers, part of the saving from the Balearic allowance may be absorbed by this tax, so it is advisable to calculate both together.

Non-residents can also apply the combined limit on Wealth Tax, as the Supreme Court has confirmed: we explain this in the combined Wealth Tax limit for non-residents.

Conclusion

The increase of the tax-free allowance in the Balearic Islands to €3,000,000 is a highly significant legislative change, with direct consequences for both resident and non-resident taxpayers. For non-residents to apply that regime, they must expressly exercise the will to opt for the regional rules by filing form 714, even where no tax is payable.

The case law of the Supreme Court and the National Court (Audiencia Nacional) supports the view that this application is an autonomous tax right, not subject to the limitations of the system of options under article 119.3 of the LGT. Consequently, even after the voluntary deadline has expired, it could validly be exercised by filing a late return or a rectification request, provided the right has not become time-barred.

If you have not filed your Wealth Tax return and wish to apply the €3 million tax-free allowance in the Balearic Islands, we can still help you.

At Vicens Advisors we specialise in international taxation and estate planning for non-resident taxpayers. Our approach is based on the individual study of each case, combining a technical analysis of the applicable rules with a tax strategy designed to optimise results and minimise risks.

Our team will support you with:

• The legal and tax analysis of your wealth position.
• The assessment of whether the Balearic regional regime is applicable.
• The preparation and filing of your return or rectification request, with full legal certainty.

Contact us for a rigorous, personalised and strategic review. We will help you exercise your tax rights in accordance with the legal framework in force.

Related articles

• The combined Wealth Tax limit for non-residents (Supreme Court judgment 1372/2025)
• Inspections of large fortunes: the real scope of the family business exemption
• Family holding companies in Spain: a tax guide to reorganising the family business

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