Property held in personal names makes more sense as Spanish wealth tax is abolished
(Wed, 20 Aug 2008)
Property held in personal names makes more sense as Spanish wealth tax is abolished
The Spanish government has approved draft legislation to abolish wealth tax. The scheme was first announced in April but now simply faces the formality of being approved by the houses of parliament to become law.
The move came as Spanish Prime Minister Jose Luis Rodriguez Zapatero announced a €20 billion (£15bn) package of 24 incentives in an attempt to boost the country’s flagging economy. Zapatero interrupted his holiday for the emergency meeting with other ministers on 14th August.
Implications of abolishing wealth tax
Wealth tax will no longer be due on net assets held by individuals, including property, regardless of their country of tax residency. Abolishing the tax fulfils one of the Socialist party’s pre-election promises from 2004.
This has implications for the ownership of property. Chris George, International Tax Consultant with STM Nummos, comments, "It is now generally better to hold property in your own name rather than in a company’s name. However, taking it out of a company into your own name is not usually worthwhile, as the cost of liquidation is so high.
"Although every case has to be considered individually, inheritance tax is now the only real disadvantage to having property in your own name."
Spanish employees’ tax rebate
The measures follow the passing as law on 21st April of a €400 tax rebate to 16.5 million resident individuals who are employees, pensioners or self-employed. It will be granted in 2008 and for the foreseeable future, saving taxpayers a total of €6bn.
The rebate aims to increase consumer spending, as Spain’s GDP growth slows dramatically, a trend which is set to continue in 2008 and 2009.
Employees of Spanish businesses (and pensioners paid by Spanish resident pension funds) received €200 in their June 2008 pay packets by means of a reduction in the income tax retained. In the following six months the income tax retained will be reduced by €33.33 per month.
Self-employed individuals paid €200 less tax when making their second quarter on-account tax return in July and will pay €100 less tax in each of their third and fourth quarterly returns.
People who do not fall into the above groups (e.g. Spanish residents employed in Gibraltar) will have to wait until they file their 2008 annual tax return in May/June 2009 and will pay up to €400 tax less (or have €400 more in their refund).
In future years, employees and pensioners will have €33.33 less income tax to pay per month and self-employed individuals €100 less Income Tax to pay in each quarterly income tax return. Again, others will need to wait until filing their annual tax return.
One interesting point, STM’s Chris George notes, is "If a couple present a joint annual tax return in May/June 2009 they will only receive a tax deduction of €400 not €800. Tax compliance accountants should therefore make two calculations for couples – on joint and individual basis -– and then select the cheapest option for their client."
Outline of other initiatives by Zapatero
Further measures introduced on 14th August include extra finance and bureaucratic cuts aimed at aiding small- and medium-sized businesses. Plans to open up the service sector will be outlined by the Finance Ministry in a draft law concerning Professional Services due to be published before 31st December 2008.
Additionally, notary fees and Property Registry fees are set to fall by an average of 20% with effect from 1st January 2009, while more money will be made available for subsidised housing to boost the construction industry.