Over the last decade, Madrid has become the epicenter of money in Spain. Not only does it concentrate the headquarters of large companies and banks, but it has also become a magnet for large international and national fortunes.
According to a study published by Fernando Rodrigo Sauco from the University of Zaragoza, based on the latest data from the Tax Agency, 41.9% of taxpayers with assets exceeding three million euros live in the Community of Madrid, compared to 22% who reside in Catalonia.
A tax shelter within Spain. The high-net-worth migration trend analyzed in the study is not new, but it has intensified over the years. Since 2011, thousands of large fortunes have moved their tax residence to Madrid.
The main reason why millionaires have concentrated in the capital is due to a more permissive tax policy on high net worth individuals and the network effect of living close to where business and financial activity is concentrated. What began as a tax difference has become a true geography of money within Spain.
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The rich live in Madrid or Catalonia. The report data indicates that 58.3% of the 1% of the richest population in Spain reside in Madrid (32.51%) and Catalonia (25.8%). Further away we find the Valencian Community, with a census of 9.76% of the country’s great fortunes, and Andalusia with 6.71%.
However, if the bar is raised to the highest decile of the ultra-rich population – rich among the richest – which corresponds to 0.1% of the population, then the concentration is even more pronounced, with 68.59% of these great fortunes residing in one of the two communities, but the differences begin to be appreciated. In Madrid the percentage of ultra-rich increases to the aforementioned 41.9, while in Catalonia it only amounts to 26.69%.
The presence of these ultra-rich residents in other communities remains more or less in the same proportions as that of the rich, with 8.2% in the Valencian Community and 6.31% in Andalusia.
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Rooting conditioning. The study analyzes the conditions that can be decisive for a great fortune to decide to pack their bags and move to the capital. This is what the study calls “migration elasticity” and defines, for example, the number of millionaires who would move if a certain tax (such as wealth tax) increased by 1% more or was reduced by the same proportion. In summary, what weight would taxation have in the decision over other factors such as roots, family, language or public services.
In this context, until the year 2023, Madrid maintained a 100% bonus on the wealth tax, which in practice means that the great fortunes residing in that community did not pay that tax. In the rest of the country, the tax can reach up to 3.5% of net assets. Added to this is a somewhat lower personal income tax in the upper brackets and the absence of inheritance tax for direct inheritances. Therefore, taxation gained weight in the decision to change residence.
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A paradigm shift. The result of this tax policy that is friendly to large assets has been clear: between 2011 and 2015, more than 6,000 large fortunes moved to Madrid. According to the study, that flow remained constant over the next decade. However, in 2023 a differential factor came into play whose effects are not yet known: the entry into force of the Temporary Solidarity Tax for large fortunes.
This new tax applied a rule in which, with the excuse of avoiding double taxation, the State began to collect the wealth tax that the communities that had it subsidized were not collecting.
According to a report from the Tax Agency, from the 27.6% of large fortunes that paid the Wealth Tax in 2022, it rose to 99% in 2023. Skyrocketing its collection in Madrid and Andalusia, where it was previously subsidized. That is to say, that tax advantage that previously conditioned the concentration of capital in Madrid has been diluted. In a few years we will see if this paradigm shift once again conditions the residence of the great fortunes.
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Image | Unsplash (Manoa Angelo)
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The news
Madrid has been filled with great fortunes and not by chance: it has known how to play its fiscal cards better than anyone
was originally published in
WorldOfSoftware
by Rubén Andrés.
