International Tax Law Barrister, Lawyer & Attorney : Leon Fernando del Canto : Private Clients, Tax Planning : Spain, UK, Europe

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.

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The Chancellor’s announcement in today’s budget regarding non-doms will only please two categories of UK non-dom tax payers.

1.- Any non-dom making under £36k taxable in the UK and over £75k outside the UK (non remmitted income). I believe they will be delighted to pay the flat tax of £30k per year and  still keep their tax payable under the 40% income tax rate. For the group of people making over £167k outside the UK and not remmitting that income, the glorious UK will still remain as one of the lower tax jurisdictions in the EU, under OECD accepted standards. 

2.- The non dom tax payers who have been in the UK for only seven years will get one extra year’s grace prior to pay the  £30,000 tax charge. Today's budget suggests that the residency test before the charge will be extended to eight out of eleven years, rather than eight out of ten.

Regarding the 90 days-a-year residence rule, a day is now only counted from arrival in the UK at midnight. The general rule is that If a UK resident goes abroad permanently, he will be treated as remaining resident and ordinarily resident if his visits to the UK average 91 days or more a year.

Over the last budgets the announcements from the Chancellor are targeting the extended non-dom population in the UK and those emigrating from the UK. The question for me is how succesful has been the HMRC in terms of financial succes for the Treasure versus the havoc that is creating among the many non doms and expats that have been and still are contributing to the UK in terms of business and financial acccumen and intellectual capital. I invite comments on this one.

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Today in the BBC it was revealed that the HMRC, the UK's tax authority has confirmed that it has paid an informant for data regarding British citizens who have accounts in tax haven Liechtenstein.

HM Revenue and Customs (HMRC) confirmed the move after a Sunday Times report, but would not say how much it had paid the informant. Read the article here

The suspected whistle blower, accused of stealing data from the bank, LGT,  was sacked and convicted of fraud.Mike Warburton, a partner at Grant Thornton at www.grantthornton.com  said: It is shocking that the Revenue has started buying information from dubious sources to help its investigations.

I have discussed this issue in this morning post OECD, Liechtenstein and Germany. Is there a place for a synthetic approach? and will welcome people's views.

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Tax Freedom Day shows just how long the UK taxpayers spend working for the UK Treasury, rather than themselves.

The concept was developed by the Adam Smith Institute in the UK at http://www.adamsmith.org and shows that the UK residents work 5 months out of 12 for the Government.The Institute says that overall, the government takes more than 40% of national income in the UK. This amount is significantly lower that the EU average. In the USA, however, the government excises are lower, and this may be understandable historically by the strong opposition to governmental pressure.

The reality is that  most  UK residents have to work a full five months of the year solely to pay that tax bill. In 2006, that meant working from 1 January to 1 June – just to pay taxes! And the March 2007 budget did nothing to change that. Tax Freedom Day 2007 once again falls on 1 June. What will happen in 2008? I can not foresee taxation going any lower, and you?

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HM Revenue & Customs published PBRN 18 and as whe have seen in previous years when the domicile or residence rules are threatened by the HMRC,  a significant ammount of noise is generated in the accounting profession.

Some of my UK non resident clients living in Spain raised their concerns with this legislation. A very good discussion can be found in Lisa Spearman's Tax plus blog 

The main discussion is who is likely to be affected?

The answer is, UK residents paying tax on the remittance basis and non-resident individuals who spend a significant amount of time in the UK.

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In the Anglo Spanish tax and legal world, the position of Gibraltar, both for proximity and for the uniqueness of its legal and tax regime is fascinating. A very good place to get some professional information about Gibraltar is the Grant Thornton site.

From the years of the Utrecht Treaty in the 18th Century, times have changed substantially . Today Gibraltar, a territory of the United Kingdom, has developed an unique position in the European Union and in the global financial markets.

Culturally, Gibraltar reflects the influence and coexistence of Britons and Spaniards with a clear Mediterranean flavor. 

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