At a conference with regional leaders earlier this month, prime minister Mariana Rajoy was urged to harmonise Spain’s tax system, which currently allows each region to set its own tax rates.
Madrid, the most densely populated region in Spain and one of the wealthiest, has much lower rates of tax than others, currently offering residents 100% relief from a previously abolished 2.5% annual wealth tax, restored in 2012, on worldwide assets valued over €10.6m (£9.03m, $11.3m).
The Spanish capital also offers 99% tax relief from succession and gift tax for Group I and II beneficiaries. Although these taxes are set by the state at tiered rates ranging from 8.5% on €15,000 to 40% on assets valued over £800,000, they often vary depending on the region.
Jason Porter, director of European IFA firm Blevins Franks, said: “This in turn attracts more wealthy individuals to live in the Madrid region, increasing the taxpaying population, the overall tax-take, and enhances the local economy through added consumer spending.”
‘Tax dumping’
During the meeting with Rajoy, the Southern-most region of Andalucia lobbied the prime minister to scrap the existing system to avoid “unfair competition” and “tax dumping” between the regions, adding it has created “substantial tax disparities” across the country.
Harmonisation is also backed by Valenciana, Murcia, Castilla-La Mancha, Castilla y León, Galicia, Extremadura, Cantabria and Aragón. The regions have proposed introducing a maximum and a minimum cap on rates for succession, gift, and wealth taxes in a bid to address tax inequalities.
Madrid and Islas Baleares have rejected the suggestion, while Rajoy agreed to appoint a committee of experts to study and compile a report.
Porter, whose firm has offices in France, Spain and Portugal, said that although Rajoy may not have made his position clear, “it is well known that the Spanish tax office is open to harmonisation of these taxes”.
He told International Adviser that the move could affect the thousands of British expats, which move to Spain each year.
“If somebody is thinking about moving to Spain, and is considering several different properties or locations, then they need to establish which of the seventeen autonomous regions their choices are located in, as each have their own rates of income and capital taxes.”
“Those people who retire to Spain need to be aware of their exposure to succession, gift, and wealth taxes in their particular autonomous region.”
