Spanish wealth tax: How much tax is too much tax?
One of life’s great truths is that most people would prefer to pay less tax. The 64,000€ question with taxation, however, is how much is too much.
In Spain, for instance, the top rate of personal income tax was 52% in 2014, the third highest in the European Union, although that was cut to 47% this year and will drop to 45% in 2016. Whatever you take home, the first 5,500€ earned every fiscal year are all yours to keep, tax-free.
But the average individual Spanish taxpayer with no dependent children still pays more than 40% of what he or she earns, four points above the average for Organisation for Economic Co-operation and Development (OECD) states, while a married couple with two kids who live on one income typically pay just under 35% of their income in tax, more than eight points above the OECD mean.
While it may cost most of us a little extra to live in Spain, in terms of the amount we hand over to Hacienda, than it would elsewhere in the Union, we don’t just get to enjoy the sunshine, but also have decent schools, good public transportation and roads, and an excellent health system, if the idea of paying all that tax makes you feel a little queasy.
Some residents (anyone who spends 183 days or more in the country during a fiscal year) and non-residents of Spain, however, not only pay part of what they earn in tax, but also have to stump up a less than fair share of what they own every year. Wealth tax (Impuesto sobre el Patrimonio) means you may be liable to pay thousands of extra euros for any property you possess, on which you already paid taxes when you bought it.
Those affected by wealth tax need to calculate the value of all eligible assets – and, for property, that not only includes those in Spain, but worldwide – on an annual basis, using whichever is the highest of the following:
1) catastral value – used to calculate a number of taxes, including property tax/rates (Impuesto de Bienes Inmuebles, IBI),
2) assessed value – as per Hacienda’s own calculations,
3) purchase price – as per your title deeds (escritura).
Despite the Socialist government of José Luis Rodríguez Zapatero doing away with wealth tax back in 2008, arguing it would hurt the middle classes rather than bother the really rich, since 2011, first (yep, you guessed it…), President Rodríguez Zapatero and, then, both the Partido Popular administrations under Mariano Rajoy re-established the levy, citing ‘la crisis’ as justification, to help finance Spain’s autonomous regions.
Each region, however, gets to decide how, and even if, they want to apply the tax or offer exemption to those who are resident, and hence pay tax even if they don’t own assets, within their boundaries. In the case of Madrid, for example, the regional government has chosen not to levy the tax at all since its reintroduction, while other areas, like Andalusia, hit those who reside in the region with the full whammy every year.
Although most other places in Europe, with the notable exceptions of France and Italy, have already done away with wealth tax, in 2015, for the fifth consecutive fiscal year, the Andalusian regional government (Junta de Andalucía) will, once again, demand payment of wealth tax from residents and non-residents alike.
Residents who own worldwide assets with a total value in excess of two million euros are taxed in accordance with a sliding scale that starts at 0.24% and climbs to 3.03%, although the first 700,000€ are exempt. Non-residents also pay wealth tax on assets held in Spain that have a total value of more than 2,000,000€, subject to the same exemption on the first 700,000€, at a rate that varies from 0.2% to 2.5%.
At the end of last September, the Rajoy government renewed the wealth tax provision for 2015, having said, as they have every year since 2011, they would only maintain the levy for 12 more months. At present, wealth tax is scheduled to be eliminated next January, but, based on past promises, don’t hold your breath.
More than 173,500 people in Spain were liable for wealth tax last year, although experts say the truly wealthy will always find a way to avoid paying. One would think a country in crisis would want the rich to remain here. Most other developed countries raise enough taxation to manage their economies without resorting to wealth taxes.
Is it not high time Spain followed their lead?
By Adam Neale | Property News | September 21st, 2015