The much maligned European Commission is on the brink of delivering a huge cash bonanza for British property owners in Spain. All foreigners who own Spanish property could reap the rewards, as the massive 35% capital gains tax for foreigners who sell property in Spain, has come under attack from the EU Commission.
The Commission has stated that foreigners are ‘discriminated against’ compared with Spanish residents, who only pay 15% capital gains and has sent the Spanish Government a formal request to amend it’s legislation.
Stating in unequivocal terms its desire for action, the Commission’s move comes at a time when individual legislation, specific only to member countries, is coming under increasingly close scrutiny. The Commission considers that the ‘difference in the tax treatment of the two categories of taxpayers constitutes indirect discrimination on the grounds of nationality prohibited by the Treaty.’
EC officials say that the 35% tax rate for foreigners, as opposed to 15% for locals ‘results in a higher tax burden on non-resident individuals in situations objectively similar to those of residents’ and may also impede Spanish employers from attracting foreigners into their labour market.
Although the Socialist Spanish Government has yet to comment on the EC request, in many respects it fits in with the Government’s general fiscal policies which are moving towards reducing Spain’s huge black money economy. Property taxation has long been an area of universal avoidance in Spain – for both foreigners and locals – so a fairer rate for non-Spaniards may actually lead to increased revenues, if vendors are encouraged to stay within the law.
If the Spanish Government brings the law into line with the rate for locals, for the first time foreigners would also benefit from the progressive discounts on capital gains that are available to Spaniards – if they sell a property within the first year of ownership. Any profit derived from the sale of property within the first twelve months of ownership would then be counted purely as ‘income’ and be taxed according to the Spanish progressive income tax rates which are:
(all figs Euros)
Spanish property experts have hailed the EC move as timely, as Spain prepares itself for a further influx of British buyers looking to take advantage of the SIPPS (Self Invested Pensions), coming into law in the UK on April 6 2006, when property purchases made through a pension scheme carry no tax burdens. With property markets in many areas of Spain currently stagnating, any boost to the market would be warmly welcomed by Spanish property businesses.