Friday, May 24, 2024

How Government Tax Developments Affect Your Savings

The most relevant news announced by the General State Budget Project in terms of investment and savings is its intention to raise the personal income tax (IRPF) by two points for work income of more than 300,000 euros and in three points for capital income of more than 200,000 euros.

In addition, it includes a reduction in deductions for private pension plans (going from a maximum of 8,000 euros to another of 2,000 euros per year) and an increase of one point of wealth tax, up to 3.5%, if they are exceeded the 10 million euros.

Unless parliamentary procedures are greatly accelerated, none of these measures will come into force in 2020 —to do so they should be approved before December 31—, explains Luis del Amo, technical secretary of the REAF of the General Council of Economists.

Although, for the moment, he adds, the announced fiscal changes are nothing more than a declaration of intent, yes “they can be understood as an invitation to make early decisions in the financial-fiscal field, which is not always correct.”

For Paula Satrústegui, wealth planning partner of Abante Asesores, the fiscal modifications included in the Budgets have been waiting for a long time – even more burdensome than those now presented – and affect a very small part of the savers and investors (income from work of more than 300,000 euros or more than 200,000 euros in capital).

In his opinion, there are no particularly relevant reasons to consider a patrimonial reorganization solely for tax criteria. Before making a decision of this type, “it is convenient to contextualize: what income will be obtained in 2020/2021, what liquidity needs will be covered, what price level is, for example, required in the real estate market; what goods can or cannot be donated to the children, and so on ”.

With these qualifications made, both experts agree that whoever repeatedly exceeds (not this year exceptionally) the 300,000 euros of earned income should, if it is in their power, advance to 2020 the collection of any possible bonus / bonus. You will save about 200 euros in taxes for every 10,000 euros of additional income.

Luis del Amo says that one does not always sell, for example, a house when you want, but “when you can.” In his opinion, for those who have in their hand to make high capital gains (more than 200,000 euros) it will be better to do so in 2020 than in 2021 (as long as the prices are the same).

For the consolation of those who cannot advance capital gains, Paula Satrústegui clarifies with numbers that the fiscal impact of the announced new taxation of savings is not excessive. He gives the example of the sale of a home with a capital gain of 300,000 euros in 2020 or 2021.

The difference in taxes between the two years is exactly 3,000 euros (1% of profits). This is so because in the Budgets the tax rates on savings are kept between 19% and 23% up to 200,000 euros (so in this example, 100,000 euros are taxed at 26%).

Both experts are clear that the contributions to pension plans that investors make this year will basically depend on their ability to save and the confidence and profitability provided by the plans they already have subscribed.

It is true, says Luis del Amo, that if possible it is advisable, for purely fiscal reasons, to speed up the contributions as much as possible. “A tax relief is achieved that can be almost 50% of what was contributed, which is not negligible,” he adds.

On whether it is more or less correct, in view of the announced changes, to rescue the plans in 2020 or 2021, for Paula Satrústegui this is not the question.

For two reasons: the first, because other variables such as the volume of income for one year or another must always be taken into account, the possibility or not of deducting the contributions made before 2006, the liquidity needs …

The second, because there are not many people with pension plans with more than 300,000 euros accumulated who could be affected by the increase in personal income tax.

If a person donates, for example, a property to a child, the first must pay income tax for the capital gains achieved (difference between the price of the donation and the purchase price).

No one will initially pay personal income tax if the same delivery is made but taking advantage of the succession agreements, by resorting to the so-called “capital gain”.

The “heir” will only be taxed on the capital gains that he actually obtains when he sells the property, although these will be calculated taking as the acquisition price the value established in the succession agreement (the higher the value, the less profit on the sale on which to pay taxes).

Although it is true that the Tax Agency and the General Directorate of Taxes do not share this opinion, it is also true that there is sufficient jurisprudence against this interpretation, especially of the Superior Court of Justice of Galicia.

The point is that the taxation of these operations called “inheritance advances” may change shortly. Not from the hand of the Budgets, but from the Draft Law on Prevention and Fight Against Tax Fraud, which has just started its parliamentary process.

It states that the acquirer of an asset, either through a contract or inheritance agreement, “will be subrogated at the value and acquisition date that said asset had in the deceased, provided that it is transmitted before the death of the latter”.

Or what is the same, that when you decide to sell it (if the person who gave it is still alive), you will pay capital gains (predictably higher) for the difference between the purchase price of the person who transferred the property to you (not as up to now, the in the succession agreement) and its sale price.

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