Spain Scraps Wealth Tax
June 3rd, 2008
Spanish residents and property owners should have one less tax to worry about – wealth tax is being abolished.
It was on 18th April 2008 that the Council of Ministers approved a measure to get rid of wealth tax in Spain from 1st January 2008. The measure has to go through Parliament and be approved by the Congress of Deputies and the Senate before it becomes law in Spain.
Assuming the proposal is approved by Parliament, the last assessment date for wealth tax will be 31st December 2007, with the final wealth tax bill being paid around now in 2008.
This will come as good news to those thinking of moving to Spain as Spanish residents will have one less tax to pay. UK residents who own property in Spain will also feel the benefit of no more wealth tax payable on their property.
The abolition of wealth tax comes along with an €18 billion package of emergency tax cuts announced by the Spanish government with immediate effect. The tax cuts were introduced to support economic growth threatened by the global credit crunch and depressed housing market. As part of €10 billion in outlay during 2008, all workers and pensioners will receive a €400 tax rebate immediately. The residual €8 billion will be allocated for 2009.
The money is coming from a budget surplus to prop up a weakening economy. According to the International Monetary Fund the Spanish economy will slow by more than half this year to 1.8%. Finance Minister, Pedro Solbes, said at a press conference in Madrid that the measures will add 0.2% or 0.3% to economic growth this year.
The Spanish government now forecasts that Spain’s gross domestic product (GDP) will expand 2.3% in both 2008 and 2009, being lower than the figures predicted last December of 3.1% and 3%.It will pick up in 2010 to 2.8% and 3.1% in 2011. In 2007 GDP grew 3.8%.
Deputy Prime Minister, María Teresa Fernández de la Vega, said: “The economic and budgetary policy of this government in the last four years has allowed us to accrue a surplus in the public accounts. This lets us take measures to stimulate the economy, to reinvigorate job creation and to help people and families in greatest difficulty.”
The abolition of Spanish wealth tax fulfills an election promise made by the Socialist party four years ago, before they came to power. The wealth tax was introduced thirty years ago as a temporary tax.
Spanish wealth tax is collected by the Autonomous Communities which have been reported as receiving approximately €1.4 billion annually from this levy. Losing this revenue is likely to mean that the regional governments will be seeking other ways to make up the shortfall.
Spanish wealth tax is based on net assets held at 31st December and the tax rates range from 0.2% to 2.5% over eight progressive tax bands. Residents are liable for wealth tax on their worldwide assets but benefit from tax-free allowances, while non-residents are taxed on their Spanish assets only, with no allowances.
The wealth tax returns for 31st December 2007 are being submitted along with the tax due sometime between 2nd May and 1st July 2008.
If you purchased property after 1st January 2008 there will be no wealth tax due on the asset providing the abolition of wealth tax becomes law and is effective from 1st January 2008.
UK residents owning Spanish property in Spain and who have no other Spanish income will still be liable for Spanish tax on any rental income at the fixed rate of 24% and capital gains tax on sale or transfer of the property at 18%. There are also minimal local property taxes to pay. But there is a purely notional or theoretical income deemed to arise for periods when the property is not let. This is based (normally) on 2% of the official value (valor catastral), but it drops to 1.1% of the valor catastral if that has been revised since 1st January 1994.This amount is similarly taxed at 24% if non-resident.
Succession tax will be levied if the recipient of an inheritance or gift is a resident of Spain or the asset being inherited of gifted is located in Spain (e.g. property). The rates vary depending on whether the state rules or regional rules apply.
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