I wrote an article in December 2011 about how austerity is becoming the ?new normal? in many European countries and that this means that we are going to have to get used to higher ta
I wrote an article in December 2011 about how austerity is becoming the ?new normal? in many European countries and that this means that we are going to have to get used to higher taxes. Spain had actually been better off than countries like Portugal and France when it came to tax rises, but this was never going to last. Sure enough, right at the end of the year the new government announced a new austerity drive to restore public finances, including the second largest tax increase in Spain?s recent history.
On 5th January 2012 it announced a new crackdown on tax evasion as another measure to help it rein in its budget deficit. All in all tax planning has become even more important if you want to protect your wealth, and you also need to make sure you only use legitimate arrangements that will stand up to the taxman?s scrutiny.
The Royal Decree published on 30th December 2011 sets out certain measures to reduce the public deficit. The tax rises are so far only planned to apply for income received in 2012 and 2013, but I would not be surprised if they were kept on for longer.
Income tax at scale rates
However much you earn you will pay a higher tax rate on your income in 2012 and 2013 as the rates have increased across the board. However, the additional contributions are progressive so that higher earners will pay a higher percentage of extra tax. The lowest additional contribution is just 0.75% for income under ?17,707 but it rises to 7% (an unheard of increase) for income over ?300,000.
The tax rates for 2012 are therefore:
?0 ? 17,707: 24.75%
?17,707 ? 33,007: 30%
?33,007 ? 53,407: 40%
?53,407 – 120,000: 47%
?120,000 ? 175,000: 49%
?175,000 ? 300,000: 51%
Over ?300,000: 52%
The Community rates may vary, for example, the top rates in Andaluc? and Catalu? are now 54% and 56% respectively.
Tax on savings income
Progressive additional contributions are also being applied to the fixed rate charged on savings income (interest, capital gains, dividends, income from life assurance contracts and annuities), this time at rates ranging from 2% to 6%. The new tax rates for savings income are now as follows:
Up to ?6,000: 21%
?6,000 to ?24,000: 25%
Over ?24,000: 27%
Considering that until the end of 2009 the rate applied to all savings income was 18%, higher earners have seen their tax rate increase substantially in just a few years.
Here are two examples of how this latest rise could affect you. A single person with no children and ?30,000 of savings income will pay around ?249 more tax this year. A married couple with two children making a joint declaration of ?400,000 will pay around ?20,301 more tax per year.
The flat 24% rate will increase to 24.75% for 2012 and 2013. The 19% withholding tax rate increases to 21%.
The Impuesto sobre Bienes Inmuebles (local council tax ) rates have also seen a progressive increase. The more recent the revision of a property?s cadastral value, the lower the increase; the older the revision, the higher the increase. Around 50% of the lowest value properties in each municipality are excluded from the increases if their cadastral values were updated since 2001. Properties whose values were revised when property prices were at their highest (2005-2007) are also exempt.
The deficit and austerity measures
Although new Prime Minister Mariano Rajoy had said he would not increase taxes during his electoral campaign, when he took office he was immediately faced with a budget deficit of 8% for 2011, well above the 6% projected by the previous government and representing a shortfall of ?20 billion. His government therefore had ?no choice? but to apply extra-budgetary measures and announced almost ?9 billion in spending cuts plus the tax increases listed above which are expected to bring in around ?6 billion.
To make matters worse on 2nd January the government said the deficit may have surpassed 8% in 2011 so it will have to introduce further austerity measures. Spain?s 23% unemployment, which produces a massive welfare bill for the government, exacerbates the problem and the government?s social security fund?s accounts are worse than feared.
Following a cabinet meeting on 5th January 2012, a new crackdown on tax evasion was announced. The government hopes it will bring in ?8.2 billion in revenue over this year alone.
More tax inspectors will be employed; workplace inspections will rise; greater scrutiny will be applied to both corporate and individual tax returns and the size of cash payments will be limited.
Spain is committed to bringing the deficit down to 4.4% in 2012. The measures announced so far are an extension of the 2011 budget and expected to be only the beginning. A larger dose of austerity is anticipated with the 2012 budget by the end of March.
For advice on legitimate tax mitigation opportunities for your income, savings, wealth and pensions, as well as on reducing your succession tax liabilities, speak to an experienced adviser like Blevins Franks.
By Bill Blevins, Managing Director, Blevins Franks
6th January 2012
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.