The income tax rates and thresholds will change next year, under reforms aimed primarily at lower income individuals and families. There are some other changes which may affect you.
The Spanish government released its draft tax legislation in June. In August it approved three laws which include some additional changes to the original proposals.
The reforms will apply from 1st January 2015. However the laws still need to approved by parliament and so may change.
The current seven income tax bands will be reduced to five, and tax rates reduced over 2015 and 2016.
The minimum tax rate is reduced from 24.75% to 20% in 2015 and 19% in 2016. The top rate will fall from 52% to 47% next year and 45% the following one. However the new top rate will apply from income over €60,000, as opposed to €300,000 as currently.
The government calculates that the average income tax burden will reduce by 12.5%. In particular, taxpayers with annual income of less than €24,000 will see their income tax reduced by 23.5%, while those earning under €30,000 will pay 19.34% less tax.
Contrary to the original proposals, the 60% deduction against net rental income for residents is not reduced to 50%.
Currently, income up to €6,000 is taxed at 21%; income between €6,000 and €24,000 at 25%, and the excess at 27%. Under the proposals, the rate for the first tax band will reduce to 20% in 2015 and 19% in 2016; income between €6,000 and €50,000 will be taxed at 22% and 21% respectively, and anything over €50,000 at 24% then 23%.
Capital gains tax
Under current rules, gains arising on assets held for less than a year are subject to the normal scale rates of up to 52%. From 2015, all capital gains, regardless of the holding period, will be taxed at the savings rates as above.
One of the most significant additional changes is the exemption for individuals over the age of 65 on all capital gains, provided the proceeds are used to buy a pension annuity. There appears to be no legislation to restrict main home relief for the over 65s in any way, including any requirement to buy an annuity.
Indexation will no longer apply on the sale of a property from 1st January 2015.
Succession tax affects almost everyone living in Spain, and many do not realise how much it can impact their heirs, depending on their circumstances. Unfortunately there are no proposed changes in the tax reform and draft legislation, to ease the burden for families.
In September the European Court of Justice ruled that Spain has failed to fulfil its obligations regarding succession and gift tax under. Basically, by allowing differences in the tax treatment between resident and non-resident beneficiaries, they have breached the EU treaties.
The main aim of the tax reforms is to help those on lower incomes, so those with savings and investments need specialist tax planning to protect their capital, income and assets from tax. The reforms do not address wealth tax, and we need to wait and see what, if anything, the government does with regards succession tax following the court ruling. It is important to seek expert and personalised advice to establish what would work best for you in the short and long-term.
For the South of Mallorca contact Peter Worthington, Senior Partner at Blevins Franks, on 971 719 181 or firstname.lastname@example.org. For the North contact Rafael Belloch Rodrigo on 971 867 781 or email@example.com.
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.
For more information and personalised advice, contact Blevins Franks on +34 971 719 181.
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Related articles to tax for foreigners living in Spain.
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This article was written on the 18th of September, 2014.