Forgive me for dwelling on this issue on a traditionally wet and miserable May Day holiday but the concept of Spain as a “Fiscal Paradise” may come as a surprise to many of you. Let me explain.
The embattled Chancellor of the Exchequer, Alistair Darling, recently gave his annual Budget Speech setting out the aims for his Government’s faltering final few months in office. During his 50 minute long address poor Alistair scored a series of spectacular own goals. His speech, only five minutes longer than Disraeli’s 1867 record breaking shortest ever Budget Speech - what gives you the impression he wanted to get it over and done with – has already elicited criticism from many quarters including the IMF for its inaccurate projections.
Darling’s Wembley hat-trick of own goals consisted of the following: the setting of a new top rate of income tax at 50% for those earning over £150,000; the loss of their personal allowances for those earning over £100,000 and just to cap it all, levying a basic rate only relief on the pensions contributions for those earning over the £150,000 benchmark
So let’s be clear - it now pays not to earn a high salary, be married or have kids, or to save for later in life! Well done Alistair, well done!
The Sunday Times quoted book retailer and a former Labour Party contributor Tim Waterstone, as describing the 50p tax as a “spiteful political move” and heralded it as a “disincentive to entrepreneurs”. Proof positive is that we have already seen reports of entrepreneurs announcing their plans to relocate to Switzerland, Monaco and the Isle of Man.
Whereas the manifesto pledge not to increase income tax has clearly been breached Gordon Brown, “He” was quoted after the Budget announcement observing that the aim was to collect from those who had benefitted most from the last 10 years of growth. How very un-New Labour and a little more Clause 4 Socialism than may be comfortable. Darling’s actions will resonate with the many including those who supported his party in the firm belief that the former extremes within the parliamentary party had been laid to rest.
What’s worse is the Government apparently knew all along that their collection of the newly increased tax would be unlikely. A report in The Sunday Telegraph quoted “a Treasury source” as confirming that they expected that around 69% of people affected by this new levy would legally avoid such tax.
Perhaps the financially successful employee or entrepreneur can take a leaf out of the guide book that seems to have been adopted by Members of Parliament. A usual MP’s salary package starts with the cash sum of circa £65,000 but is thought to be worth around £180,000 after provision for allowances and expenses. May be a renegotiation with your employer to redefine the elements of a remuneration package would deliver the best solution? If your employer happens to be yourself then that conversation may be even easier!
An alternative strategy would be to relocate to country where the tax regime does not seem to be fuelled by the politics of envy. A country that is some circa three hours from office desk to home office, has exceptional road, transport and health infrastructure, some of the best golf courses on the planet, as much beach as you and your kids can dream of, schooling that sits head and shoulders above many of its UK OFSTED counterparts, an average of 325 days of sun a year and an average summer coastal temperature of 36°, a current property market offering real value for money and an EU recognised initiative to ensure that previous planning uncertainties are a thing of the past - need I go on……….
Yes - Ladies and Gentlemen, and I cannot quite believe this either – but I give you SPAIN.
Let me say this quietly to avoid the rush for the EXIT but Spain has as its highest income tax rate – a FOUTY THREE PERCENT ceiling – applicable to earnings in excess of €53,407.
Wealth tax has been effectively abolished in Spain and the personal allowances for all “Resident” earners – regardless of earnings - vary from €8551 for a joint declaration to a cumulative child allowance that rises with the 4th child to €4,182. Consequently, in addition to a saving on income tax of 7% it seems in cash terms earning £150,000 and electing Spain as your tax residency may well leave you, under the current Spanish regime, materially better off.
Now that’s what I call a lifestyle decision. Think on……