Tuesday, August 30, 2011

Spain targets rich taxpayers

Or does it? Spain's government was reported to be looking at ways of getting more tax from its wealthiest citizens last week. It's looking at ways of getting its budget deficit down to 6% this year. The inspiration is said to have come from France where a 3% tax surcharge was imposed on incomes over €500,000 recently.

One idea being mooted is a return of the wealth tax ("Patrimonio") abolished in 2008. This was an extra tax based on assets like investments and houses rather than income.

Because of reasonably generous tax allowances the tax didn't raise very much money - about €2.1 billion in its final year - and was quite an intrusive and inefficient tax. Its abolition was widely celebrated even though most of the wealth tax was paid by the very wealthy at the top of the pile.

One group that would be badly hit by a return of the wealth tax in its old form would be non resident property owners. Holiday home owners are already obliged to submit a tax return and pay income tax based on the rateable value of their house or apartment (see Spanish Tax Form 210 for details). Up until 2008 they also paid wealth tax which doubled or trebled their liability partly because they were not entitled to the same deductions as residents.

Hopefully it won't come to that. Spanish newspaper La Razon in an article entitled "The government parks taxes on high incomes" is pretty sure plans were discussed but then shelved due to differences of opinion within the governing PSOE. It categorically ruled out the return of the wealth tax or an increase in taxes on very high incomes (Spanish tax rates are already rising to 45% this year) although some other newspapers hedged their bets. Other articles this week have talked about the wealth tax returning but with a much higher threshold for paying it e.g. minimum assets of €600,000 or €1,000,000.

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