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The Valencian government has recently announced new rules related to personal income tax and succession and gift tax that are expected to apply in this Spanish region from January 2017.

Lower earners will benefit from income tax rate cuts, while those with income over €70,000 will pay more tax. Other changes affect succession and gift tax rules, including reductions of current tax credits.

The draft law (Anteproyecto de Ley de Acompañamiento a los Presupuestos) was released on 30th September 2016. It was based on an analysis prepared by tax experts as requested by the Valencian government. Note that this is still a draft law. It will accompany the Comunidad Valenciana 2017 budget, and so it will have to be approved during the next months.

Here is a summary of the most relevant changes affecting expatriates living in Comunidad Valenciana. This includes the Alicante, Valencia and Castellón provinces.

Personal income tax

The current regional tax scale will be replaced by a new one. The aim is to create greater progressivity, reducing the regional portion of income tax for the taxpayers with lowest income and increasing it for the wealthiest taxpayers.

Current regional income tax rates (excluding the national tax rates):

TAXABLE BASE

REGIONAL TAX RATE

0 - 17,707

11.90%

17,707 - 33,007

13.92%

33,007 - 53,407

18.45%

53,407 - 120,000

21.48%

120,000 - 175,000

22.48%

175,000 onwards

23.48%



Proposed new income regional tax rates (excluding the national tax rates):

TAXABLE BASE
 €

REGIONAL TAX RATE

0 - 12,450

10%

12,450 - 17,000

11.90%

17,000 - 30,000

13.90%

30,000 - 50,000

17.50%

50,000 - 70,000

21.50%

70,000 - 120,000

23.50%

120,000 onwards

25.50%


This will cost the Valencian government an extra €75 million, but it will benefit more than 1.6 million taxpayers in the region.

National income tax rates currently range from 9.5% to 22.5%. So the combined rates of tax for taxpayers in the Valenciana region range from 21.4% to 45.98% in 2016.

Succession and gift tax

Under this new tax reform, civil partners ‘parejas de hecho’ (known as ‘uniones de hecho’ in Comunidad Valenciana) will be recognised with same rights for succession and gift tax purposes as married couples. They will therefore be part of Group II (children and other descendants aged 21 and over; parent and other ascendants; spouses) for both for inheritances and lifetime gifts.

Additionally, other changes were announced for both inheritances and lifetime gifts, as follows:

For inheritances: The 75% tax relief for Group II beneficiaries on inheritances will be reduced to 50%. The relief for Group I beneficiaries (children and other descendants under 21) will remain 75%.

For lifetime gifts: The 75% relief with a limit of €150,000 on lifetime gifts for relatives will disappear. However, the €100,000 personal reduction for relatives on lifetime gifts remains applicable for cases where the pre-existing wealth of the donee is less than €600,000.

Finally, the benefits included in this particular law for family business will now be limited to small size family run companies. Multinationals will not be able to benefit from it in future.

The Valencian government expects to earn an extra €86 million in taxes from this succession and gift tax reform.

Remember that at this stage this is still a draft law, so changes are possible before the final text is approved over the coming months.

2017 State budget

Of course reforms in the state budget also affect taxpayers in Comunidad Valenciana. Because of the current political instability in Spain the government is not in a position to issue a full new budget for 2017. However on 15th October 2016, the caretaker government submitted the ‘Plan Presupuestario’ for 2017 to the European Commission, containing their budget plan for next year.

The 2016 Spanish budget will apply to fiscal year 2017 (i.e. the same national rates will apply as for 2016). However, there are some measures to be developed to increase revenue for the government, with the aim of achieving the 3.1% deficit agreed with Brussels, as follows:

  • Extend wealth tax so that the 100% relief is not applicable (so wealth tax will continue to apply for another year).
  • Increase IBI tax (Impuesto sobre Bienes Inmuebles) for real estate.
  • Increase corporation tax for certain companies, depending on their results.

Spain can be a more tax-efficient country to live in than many people realise, particularly for retirees. With specialist advice you can often reduce tax on your savings, investments, pensions and assets.

Any questions? Ask our financial advisers for help.

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 is advised to seek personalised advice.