Though the Spanish Socialist party failed to form a government yesterday, the political pendulum in Spain is swinging to the left after many years of austerity under the right-of-centre PP party. A Socialist-led Government could put even more pressure on the tax authorities to go after every last euro of revenue, including a squeeze on company ownership structures for high-end properties.
Yesterday, Spain’s acting Socialist Prime Minister Pedro Sánchez (pictured above, with his cabinet) failed to get enough parliamentary support to form a Government. In particular, he failed to do a deal with the hard-left Podemos party led by a scruffy character called Pablo Iglesias, who was demanding disproportionate power in the new Government. Their negotiations fell apart spectacularly, and the damage might be irreparable. If so, fresh elections will take place in November.
The hard-left Podemos crowd didn’t get their hands on any real power this time round, but they have forced the more centrist Spanish Socialist party to tack to the left to fend them off. And whilst they were still talking, the Socialists offered Podemos some government ministries, including control over the housing department. So, if they do manage to patch things up, it’s worth keeping in mind that Spanish housing policy could come under the control of the hard left, who also wanted control over customs and revenue.
The Spanish hard-left,with their communist roots, take a dim view of wealth, foreign investors, and any attempt to avoid taxes. They want to clamp down on all tax breaks and increase tax rates. Real estate cannot be moved off-shore and is an easy target.
But even under the centre-right Government of Mariano Rajoy, the tax authorities were already aggressively ramping up programmes to increase tax revenues without an increase in the tax rate. Governments of all stripes understand the importance of revenue, especially when public finances aren’t in great shape. With the Left coming to power promising higher social spending and taxes, public finances will be under even greater pressure, and the message won’t take long to reach the tax inspectors.
As I have mentioned before, the Spanish tax authorities are paying close attention to International company structures established in decades gone by to help wealthy owners of property in Spain avoid tax. Owners of high-end homes received bad advice in the past, and in many cases failed to review the position annually. Many of those structures are now a ticking tax time bomb, and the fuse will get even shorter with left-wing Government looking to finance increased social spending.
“It is clear that buying property through a company has become less tax-efficient, and can be a nightmare in case of a tax inspection,” explains tax-specialist lawyer Fernando Del Canto. “If clients own a property in Spain worth more than €1m through a company set up before 2018, especially if there is an offshore company involved, assess the tax exposure and be prepared for the possibility of an inspection. Those who have already attracted the attention of the Spanish tax authorities should take urgent action. A well-prepared response will send a strong message to the tax authorities that the owner is not a soft target, which is half the battle.”
Del Canto estimates that more than 5,000 private properties in Spain are owned using international company structures, many of them by people based in the UK. If you own a Spanish property through an international company structure, Spain’s swing to the left is another good reason to review your tax exposure sooner rather than later.
Del Canto Chambers, with offices in Madrid and London, are cross-border Spanish and international tax specialists with unique experience in sorting out, or heading off, tax liabilities for high-value properties in Spain. Get in touch with them for a free report on your tax exposure, or to deal with a tax inspection.