There were sighs of relief in Spain on 7 January when parliament gave the green light to a coalition government after nine months of uncertainty.
The country was politically unstable during most of 2019, as two inconclusive elections in April and November failed to produce a majority government.
But now, the Spanish government has a newly elected prime minister in the form of Pedro Sánchez, who is from the country’s socialist party PSOE, with the support of far-left party “Unidas Podemos”, led by Pablo Iglesias.
A fully-functioning government may be a sign of positivity for the country, but what will the two left-wing parties do for personal finances and taxes, and what does this mean for UK expats based in the European country?
Tax proposals
The deal hammered out between Sanchez and Iglesias included some tax proposals.
They include:
- Approving a law to fight tax fraud, which could mean updating the tax havens list, forbidding tax amnesties and dedicating more resources;
- Increasing the government authority over Sicavs and include additional requirements to avoid control by a single investor;
- Studying the taxation of high net worth individuals in order to make sure they contribute more to the system; and,
- Introducing two tax brackets for general income over €130,000 (£111,000, $145,000) and €300,000, respectively.
Jason Porter, business development director at Blevins Franks, told International Adviser that they “show there is an intention to increase the taxes paid by the wealthy, and restrict tax planning opportunities”.
‘What if’ planning
Barry Davys, Barcelona-based partner at The Spectrum IFA Group, told IA: “We are watching closely the potential impact from the budget, which is one of the first items of business for the Spanish government.
“It is reasonable to expect that this budget will be based around the 2019 budget which was proposed, but not passed, due to a lack of a government majority.
“Proposals include an increase in taxes for those earning over €130,000 and some changes to savings tax too.
“Forecasters predict a slowdown in the Spanish economy. The combination of higher taxes and a slowdown may have a knock on effect for employment prospects for international people.
“At the moment, we are not making changes to our advice based on second guessing what might be in the budget, as the parliamentary majority is just two seats.
“We are, however, internally doing ‘what if’ planning, so that when legislation is passed we will have a strategy ready for our clients.”
Tax planning strongly advised
Santiago Lapausa, head of tax, economist and partner at Marbella-based law firm JC&A Abogados, said to IA: “2020 appears to be a year full of new regulations; and from a very different angle and perspective due to the coalition of socialists with hard left populists and supported by pro-independence Catalan left party.
“Tax planning is always important, especially when moving to another country, but with the eventual barrage of laws, people should check and revise their plan constantly to be updated and avoid unexpected results.
“After 31 January 2020, the UK will enter a transition period until 31 December 2020 so many Brits will take the chance to move into Spain during this period; I strongly recommend to get a tax planner before taking any decision.”
Reignite previous bill
Blevins Franks’ Porter also said that he believes that the coalition could look to revive a proposal made two years ago.
In October 2018, a preliminary bill was announced by the government under the name ‘Anteproyecto de Ley de medidas de prevención y lucha contra el fraude fiscal’.
The bill had one clear objective, to introduce measures to prevent and fight tax avoidance and tax fraud in Spain.
The proposal said the method for calculating the value of a life policy will change from the surrender value of the policy on 31 December to mathematic provisions underpinning the policy (ie the investment fund) on 31 December.
It also proposed the value of real estate, for wealth tax purposes, to be calculated based on the highest of four values:
- The officially registered ‘Valor Catastral’, which is an estimate of capital value;
- The value taken into account for any other tax purposes (given by the Tax Office);
- The price in the purchase agreement; or,
- The market value.
The 2018 bill also featured changes to income and capital gains tax, as well as rules to report cryptocurrencies in Spain.
Lastly, switching between exchange-traded funds (ETFs) is not taxable in Spain, but the bill was looking to stop this, making a switch from one ETF to another a taxable event.
