Last 9th of March, the Spanish general elections gave Prime Minister Zapatero a great opportunity to show what he can do for the Spanish Real Estate market. Can the property market be influenced by a wise tax policy? I believe so.
During Zapatero's campaign there was a commitment to abolish some taxes, i.e. wealth and Inheritance which may have historically prevented people to relocate to Spain. There were often press releases regarding tax breaks and incentives for the developers, buy to let allowances, etc...
The government will be formed in April and we shall see the legal instruments to implement the tax changes, which we will continue monitoring.
In Costa del Sol during the last decades we have seen the rise of the residential property market and the influx of hundreds of thousand British and Irish property buyers. Originally many people came to retire to this part of the world, a trend that is still true today. During the last decade, however, a large wave of investors came, fueled by a buoyant market at home, specially in the UK and Ireland. The off-plan investment opportunities were promoted by 3-4 large real estate companies, which made very popular to invest in Spain.
Now, in 2008, the market is very different. It would be fair to say that the international demand is still high for residential properties in Costa del Sol, as well as a large offer of such properties, with may have been temperated by a bear sentimento in the international investment market.
The urban plans are not coming to terms with environmental concerns and the construction in Costa del Sol has slowed down too. A natural correction of the frenetic rhythm of construction of the last decades.
In our professional practice at Konsilia we are observing a clear trend in the last year, which involves international executives in their 40-50s with their families, moving to Spain primarily for lifestyle reasons. In Costa del Sol, primarily from Marbella to Sotogrande, they find a place to live with English professional services, several international schools and plenty of international flights from Malaga, Gibraltar, Jerez or Sevilla airports to the main international destinations.
These clients want to be genuinely residents in Spain. As a tax adviser I like to think that there are some tax elements in this move:
- The new Spanish expatriate regime allowing international executives to move to Spain with a 24% flat tax rate, excluding international income and wealth from been taxed in Spain during the five years following the move. Please see our article on this topic published in the Tax Journal (UK)
- The beneficial Spanish tax treatment of investment income, including interest, dividends and capital gains at 18% rate, which makes Spain a great place to come to live out of the hard made money.
- The promises of the Spanish government to abolish Wealth Tax, and possibly Inheritance Tax, at least to reduce the pressure of this last one for residents. Regarding Inheritance Tax we have seen some moves on some regions like Illes Balears, where Palma de Mallorca is located, and its government has reduced the charge for donations made to buy the first residential property (L 6/2007 27 December)
- The UK changes on non-dom rules, which is a very suggestive way for some British Tax non-dom to make a move to warmer lands.
Of course there are many other elements to support the continuation of this trend in Costa del Sol. It is true that the Spanish Economy , considering the many challenges in and outside Spain, continues performing at a good rate.
Another interesting data, this one from the Property Consultants CB Richard Ellis , is the investment opportunities arising from commercial property in Costa del Sol, a market that is reflecting the increase of businesses in the area.
Summarizing, we believe that these times of stabilization of the residential market in Costa del Sol are a mild correction in a sector reaching now maturity. The future of Costa del Sol, far away from what has been said by many tabloids, is still bright and we are confident that the Spanish government can influence it positively with some tax reforms, as the ones mentioned in this post.