The Supreme Court confirms that non-residents can apply the combined limit in Wealth Tax

Legal analysis of Supreme Court Judgment 1372/2025 and its Balearic precedent

The analysis of the combined limit for non-residents in Wealth Tax takes on new relevance in light of the Supreme Court’s recent doctrine, which recognises its application to non-resident taxpayers.

Supreme Court Judgment (Sentencia del Tribunal Supremo, STS) 1372/2025 of 29 October (ECLI:ES:TS:2025:4849) definitively resolves a question that had been debated for years in the application of Wealth Tax (Impuesto sobre el Patrimonio, IP): whether non-resident taxpayers subject to limited tax liability (obligación real) may apply the combined limit of Article 31 of the Wealth Tax Act (Ley del Impuesto sobre el Patrimonio, LIP).

The Supreme Court (Tribunal Supremo) fully upholds the judgment of the High Court of Justice of the Balearic Islands (Tribunal Superior de Justicia de Baleares, TSJIB) of 1 February 2023 (appeal no. 432/2020) and declares that the exclusion of non-residents breaches the principles of equality, proportionality and free movement of capital.

For Vicens Advisors, a firm with a well-established track record in the taxation of non-residents in Mallorca, the Supreme Court’s ruling reaffirms an interpretation that we had already been defending in professional practice: the combined limit is a structural safeguard against confiscatory effects and must apply to every taxpayer, regardless of residence.

1. The specific case decided by the Supreme Court

The dispute arose from a taxpayer resident in Belgium who owned real estate in Spain and filed his Wealth Tax return (modelo 714) under the limited tax liability regime. The self-assessment produced a tax liability of 142,079.58 euros.

After analysing his personal taxation in Belgium (the equivalent of Spanish Personal Income Tax, IRPF), he requested rectification of the self-assessment, arguing that the sum of the Spanish Wealth Tax liability and the tax burden borne in Belgium exceeded the limit of 60% of the taxable base laid down in Article 31 LIP.

The State tax authorities rejected his request on the grounds:

• that the combined limit applies only to taxpayers subject to unlimited tax liability (obligación personal), and

• that there were no mechanisms to verify foreign taxation.

2. The TSJ of the Balearic Islands judgment: the Supreme Court’s starting point

The TSJIB centred its analysis on the prohibition of discrimination in Article 14 of the Spanish Constitution (CE) and on the constitutional function of Article 31.1 CE, stressing that the combined limit operates as a safeguard against confiscatory effects.
In its Fifth Legal Ground (Fundamento Jurídico Quinto), the Balearic Chamber stated that excluding non-residents from the limit:

• is not justified by any legitimate aim,

• produces a disproportionate tax burden,

• and breaches the principle of equality before the tax law.

In addition, the TSJIB invoked the case law of the Court of Justice of the European Union (CJEU judgment of 3 September 2014, C-127/12) and recalled that more onerous tax treatment based solely on residence constitutes a prohibited restriction on the free movement of capital.

It is this legal reasoning that the Supreme Court takes up and extends.

3. Second Legal Ground of the Supreme Court: a precise delimitation of the debate

In the Second Legal Ground (Fundamento Jurídico Segundo), the Supreme Court sets out the parties’ procedural positions and the core of the dispute. It stresses that:

• The taxpayer provided complete information on his taxation in Belgium.

• The tax authorities merely denied that the limit applied, without assessing whether or not there was a risk of confiscation.

• The TSJIB ruled correctly by focusing its analysis on the purpose of Article 31 LIP rather than on tax residence.

This ground allows the Supreme Court to show that the debate is not a technical or administrative one, but a constitutional and European one.

4. Third Legal Ground: the key to the ruling

The Third Legal Ground (Fundamento Jurídico Tercero) sets out the Court’s structural reasoning:

4.1. The taxable event does not depend on residence

The Court states that the nature of Wealth Tax, which is to tax net wealth, does not vary by reason of residence.
It quotes verbatim that the distinction between unlimited and limited tax liability “does not alter the nature of the tax or its object”. It thereby concludes that residents and non-residents are in a comparable situation.

4.2. The combined limit is a safeguard against confiscatory taxation

The Court points out that Article 31 LIP acts as a structural safeguard to prevent confiscatory outcomes.
Accordingly, «Excluding taxpayers subject to limited tax liability from the combined limit runs contrary to the purpose of Article 31 LIP.” In other words, it is not a tax benefit but a requirement of tax justice.

4.3. Breach of the free movement of capital

The Supreme Court expressly incorporates the case law of the CJEU, noting that: “Measures that reduce the value of the assets of a non-resident constitute a restriction on the free movement of capital.” Excluding the limit produces exactly that effect: it reduces the value of the non-resident’s investment through taxation.

4.4. The existence of means to verify foreign income

The tax authorities argued that they had no means of knowing the Belgian taxation of the taxpayer. The Court dismisses that argument, recalling:

• Directive 2011/16/EU (DAC),

• the Spain–Belgium Convention,

• and the European obligation to exchange tax information.

Therefore, there is no technical or legal impediment.

5. Fourth Legal Ground: the definitive case-law doctrine

In the Fourth Legal Ground (Fundamento Jurídico Cuarto), the Supreme Court expressly formulates the applicable doctrine: “Habitual residence, whether in Spain or abroad, does not justify the different treatment given to residents and non-residents (…) That difference in treatment is discriminatory and is not justified.” With this sentence, the Chamber closes the debate.

6. Direct impact on the specific case: rectification and refund

The Court finds that, had Article 31 LIP been correctly applied, the taxpayer’s Wealth Tax liability should have been reduced, given that the personal taxation paid in Belgium, added to the Spanish Wealth Tax liability, clearly exceeded the limit of 60% of the taxable bases. Because the limit was not applied, the resulting tax liability was excessive and confiscatory, which justifies the rectification of the self-assessment.

The Supreme Court thus confirms that the taxpayer:

• was entitled to rectification,

• was entitled to a recalculation applying the combined limit,

• and was entitled to a full refund of the amounts unduly paid.

7. STS 1402/2025 of 3 November: an immediate and consistent confirmation

STS 1402/2025 of 3 November reinforces the line of case law that culminates in the judgment discussed here. In this ruling (issued barely a few days later), the Supreme Court again rules on an identical situation: a non-resident taxpayer, subject to Wealth Tax under limited tax liability, requested application of the combined limit of Article 31 LIP, relying on the tax actually borne in his country of residence.

The Third Chamber (Sala Tercera) reiterates that there is no material difference between residents and non-residents with regard to the taxable event of Wealth Tax, so that excluding the latter from the combined limit lacks objective justification. The judgment emphasises that the limit in Article 31 LIP has an anti-confiscatory function that is fully applicable also to those who are not taxed under unlimited tax liability, and that any exclusion based solely on residence breaches both Article 14 CE and the free movement of capital.

Consistently with the earlier doctrine, including that of the Supreme Court itself and of the High Court of Justice of the Balearic Islands, STS 1402/2025 confirms the need to apply the combined limit to non-resident taxpayers whenever total income exceeds the 60% threshold, definitively consolidating an interpretation that no longer admits reservations or restrictive criteria on the part of the tax authorities.

8. Conclusion: a ruling that reshapes the taxation of non-residents

STS 1372/2025 sets out a solid and conclusive doctrine that:

• definitively places residents and non-residents on an equal footing in the application of the combined limit,

• restores the principle of equality and avoids confiscatory effects,

• obliges the tax authorities to review their criteria,

• and provides legal certainty to taxpayers with assets in Spain.

For non-residents with assets in Mallorca and in the rest of Spain, the judgment opens the way to review the tax years that are not yet time-barred and to correct situations of excess taxation.

Copyright notice

© Vicens Advisors, S.L. All rights reserved.
Total or partial reproduction of this content, by any means or procedure, is prohibited without the express written authorisation of its owner. Any unauthorised use will constitute an infringement of intellectual property rights under the applicable legislation.