Thousands of second-homes in Spain would be hit by a new tax on “large fortunes” proposed by the coalition government’s far-left Podemos party 😳

luxury villa ibiza targeted by podemos wealth tax proposal
Luxury properties in Ibiza would be hard hit by the Podemos coronavirus wealth tax proposal

Podemos – the hard-left junior partner in Spain’s coalition government with the Spanish Socialist (PSOE) – is calling for a new tax on wealth to help pay for the coronavirus recovery effort. Anyone with net Spanish assets worth €1m or more would get caught in the net, including thousands, or even tens of thousands, of foreigners with second-homes in Spain.

Podemos has presented a proposal to Spain’s newly established congressional ‘Committee for the Social and Economic Reconstruction of Spain’ calling for a new tax on what they call large or great  fortunes (grandes fortunas) to replace the existing Spanish Wealth Tax (Patrimonio) so that “those who have the most can pitch in,” in the words of Podemos supremo Pablo Iglesias, who is one of Spain’s 😳FOUR 😳deputy prime ministers.

Although “great foruntes” suggests Podemos have the super-rich in their sights, it turns out they mean anyone with net assets in Spain worth €1m or more, which would include tens of thousands of second homes in nice parts of the country, many owned by foreign investors.

ibiza luxury villa wealth tax target
80% of villas in Ibiza cost more than €1m

Take Ibiza, for example. According to the property portal at ThinkSpain there are 1,343 villas currently for sale in Ibiza, and 1,100 of them (80%) have an asking price of €1m or more. That’s just Ibiza.

When you think about all the prime spots on the Spanish coast in the Balearics, the Canaries, the Costa Brava, the North Costa Blanca, the Costa del Sol, Sotogrande, Tarifa, and the best bits of the Costa de la Luz, not to mention cities like Barcelona and Madrid, you realise there will be tens of thousands of Spanish properties with a value (at least pre-crisis) of €1m or more, many of them owned by foreigners.

“Progressive” tax on wealth to pay for coronavirus damage to Spanish economy

Podemos are proposing a “progressive” tax on net assets in Spain of €1m or more starting at 2%, and going up to 3.5% on fortunes of €100m or more.

“The party has estimated that the new tax will raise €11 billion, or 1% of Spain’s GDP, which is the equivalent of a third of Spain’s deficit in 2019, and more than double what the government spent on health last year,” explains the Spanish daily El Pais. Does this sound realistic?

So, if you have a holiday-home in Spain worth €1m mortgage-free, Podemos want you to pay €20,000 per year in extra tax. That would likely destroy the market.

The new coronavirus wealth tax bands Podemos propose are as follows:

  • 2% p.a. on net assets worth €1m or more
  • 2.5% p.a on €10m or more
  • 3% p.a on €50m or more
  • 3.5% p.a on €100m and up

“It’s fair that those who have the most should contribute in a special way to sustain those who have been most affected by the crisis,” said a party source, quoted in the Spanish press.

“There is consensus that instruments like a tax for reconstruction are needed so that those who have the most can pitch in, providing resources to the public coffers,” Iglesias has said. He went on to say in declarations to the Senate on Thursday “I don’t think anyone who has more than one million euros will struggle with an exercise in fiscal patriotism,” adding in an ironic tone  “they are desirous of it,” the press reports.

According to Podemos, “the largest part of the tax would fall on the highest 1,000 fortunes,” but that’s unlikely. The 1,000 richest people in Spain will have their tax affairs nicely arranged to avoid taxes like this, or simply just move away, whilst the “largest part” of the tax would fall, as usual, on the tens of thousands who, for whatever reason, ended up with a valuable asset in Spain, but can’t afford to pay a tax like this, or the expensive tax-planning needed to avoid it.

 
Pedro Sánchez (left), and Pablo Iglesias (right). Before he was forced by electoral realities to accept a coalition government with Podemos, Spanish president Pedro Sanchez, leader of the PSEO, said of his current VP Pablo Iglesias that “he lies more than he speaks.”

Political posturing

As things stand, there is little chance of this proposal by Podemos becoming a reality. This move is mainly about positioning as high tax-and-spend with left-wing voters who they want to lure away from their coalition partners.

In fact, this proposal is nothing new. It was included in the Podemos electoral manifesto of ‘fiscal justice’ measures, but was left out of their coalition agreement with the Socialists. They are just taking advantage of the coronavirus crisis to wave around their rich-bashing tax proposals in front of their base.

PSOE government ministers have disowned the proposal, making clear it has little hope of prospering. “It’s a Podemos proposal, not a government proposal,” said one minister. “There are many other ways to make the rich pay more,” treasury sources are quoted as saying.

The new wealth tax being proposed by Podemos might not look very promising right now, but who knows what will happen as this crisis unfolds, pushing Spain towards bankrupt. Real estate wealth can’t leave, and foreign investors can’t vote, so it’s reasonable to worry that taxes on second-homes will go up whoever is in power, just more so if Podemos have anything to do with it.

sotogrande property wealth tax patrimonio
Expensive homes in Sotogrande would also be hit by the new wealth tax proposed by Podemos

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One thought on “Thousands of second-homes in Spain would be hit by a new tax on “large fortunes” proposed by the coalition government’s far-left Podemos party 😳

  • The sad hard facts are that COVID-19 will destroy so many small businesses, cafes and restaurants which add considerable enjoyment and increase everyone’s quality of life unless they get some form of financial support.
    Providing all money the government get from these wealth taxes benefits such entrepreneurs then it has to be a good thing. A fundamental flaw in the spanish economy is the high proportion of the working population who say they cannot afford to pay their taxes and are part of the thriving black economy. Greater control on this sector of the population would give Spain a much more financially viable economy. I do resent paying the gardener who also looks after the pool some 5000.00 of my taxed income each year knowing full well that in normal times he has plenty of other work.

    Is this based on sale price or more likely catastral value if an annual tax??? I imagine most asking prices far exceed catastral values. If there are tens of thousands of foreign owned homes worth in excess 1m then there will be hundreds of thousands of homes worth less than 1m.

    It is also a complete misconception that the rich object to pay tax. The majority of those in a position to own second homes in excess of 1m are not going to be those who work 40 hours a week for a fixed salary but those in a position to command a salary which also includes achieving profit targets of a company such as CEOs or who work in the financial sector and receive a share of fee income earned by the companies they work for. In both these instances the money earned is not hard earned and to pay 20,000 on a 1m property would not be a hardship or even noiced.

    This article is not unrelated to your proposed series of articles on why not to buy in Spain. I have a couple of properties on a golf course 10km from the coast [Roche Barrosa beach] and it is paradise. Being non resident the smaller house is rented long term autumn to spring and short term let during the summer so just about washing its face. We drive down with the dogs and stay at the larger property for six or seven weeks in the spring and then in the autumn.

    I rent it out for a long winter let [not much money but it keeps the house secure and dry and my renter pays for the gas and electricity she consumes – a lot less this winter as we now have pv panels generating solar power] and a series of short term summer lets. Yes, the taxes are a pain and it will be worse from next January as I will go from 19% with renting related expenses allowed to 24% and no expenses allowed [which is highly unfair]. I pay taxes on the same income in the UK but at least my spanish taxes are considered as legitimate expense by our more equitable HMRC.

    So I see both sides. The families from Madrid and northern Spain who have a wonderful holiday and my german winter guests [regulars for the last six years in both houses] whom we have visited in their homes in Germany.

    But however nice our house is – even stripped to basics with all our personal laundry and items in a locked cupboard under the stairs leading to the tower – it isn’t their home but they leave personal things behind and invite friends and family to stay with them.

    For them northern european winters are bad for their health and they need the vitamin D, fresh fruit and vegetables and other wonderful things the fishermen and cattle ranchers and the LaJanda plain provides.

    For us we have many Spain resident english, german french and spanish friends and neighbours. My wife continues with her pilates and Spanish lessons and I just do as in the UK – painting, repairing, improving and overseeing workmen to do work I cannot. But we walk the dogs on the beach every day, often play golf and explore the small villages going to fiestas and ferias – having a wonderful time swimming in the sea or pool. Being entertained and entertaining friends in our own home. We both have non-geographical jobs so working from the UK or Spain is much the same.

    So not everything is down to money and taxes; many of our friends use their homes on the golf course as a base and travel further afield to see friends and family in Dubai, Australia, Africa or America and will continue once the COVID19 genie is firmly back in the bottle.

    One has to buy wisely [which usually means giving up on the dream of a finca in the hills or a too good to be true deal on non urbanised designated land], accept the tax implications and then have a great time embracing the differences, enjoying coping with the language and with the internet everything is accessible including UK TV and radio.

    So to my mind the pleasures of owning your own home in a different country providing it is well placed far far outweighs any of the downsides.

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