Wealth tax will be abolished next year, but IBI to go up

Wealth tax will be abolished ahead of the 2015 elections, but IBI (Spanish tax on property) looks likely to go up again to compensate. That will annoy the hundreds of thousands of expat property owners who will see their IBI tax possibly double or triple.

The wealth tax is known in Spanish as impuesto del patrimonio and is administered by the regions. It was originally centralised in 2008, but was returned to the regions back in the fiscal reform of 2011 in a desperate attempt to raise cash. It varies widely from region to region – Madrid bypasses it by taxing it at 0%, whereas Catalonia applies a 2,75% on all assets over half a million euros, and brings in about 850 million euros a year for the region.

But modern states don’t like wealth taxes – they fall disproportionally onto the middle classes, discourage savings, and are taxed on assets that are usually taxed again by inheritance or gift taxes.

So by dumping it, Spain will be coming into line with most other EU states.

To compensate, the central government wants to put up IBI yet again (it’s gone up an average of 47% since 2007), and change the way it works.

The central government is proposing a new unified IBI level across the whole of Spain. The current IBI (a tax on property) is set at a local level and funds go back to the town.

The new IBI would be set at a national level, and the money go to the regions. The catastro, the list of properties, would be updated yearly to reflect local property values (instead of the current system, where taxes could be a decade out of date).

This means that in reality, people could see their IBI tax double or triple – not only will the rate go up, but the supposed value of their home will probably shoot up, despite the drop in property prices. This is because in most holiday areas, the catastro is so out of date it’s a load of nonsense.

The proposal would see taxes raised by IBI go up from about 7,2 billion this year to 10,2 billion in 2016 under the new scheme.

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