British expats in Spain face higher taxes on their pensions and living costs following details of an austerity budget revealed by the government for 2010.
Tax on unearned income rises 1% to 19% and the annual 400 Euro income tax rebate is abolished; meaning the average pension pay out will face extra tax.
The Spanish government is trying to spin the income tax increases by targeting the rich – but many UK expats are caught in the tax net.
“Those with the most should make the biggest contribution,” said finance minister Elena Salgado.
The increase in unearned income tax is expected to raise 800 million Euros a year, only a small amount of the cash needed to plug the country’s budget deficit.
Living costs will rise as VAT goes up 2% to 18%, with the secondary banding for restaurants and hotels up 1% to 8%. VAT on food at 4% remains the same.
Other taxes to increase include those on capital gains and interest on savings.
Spain is one of the most popular retirement destinations from the UK, because of a better climate and the cost of living was cheaper in the UK.
Now, Spain is the first of many countries introducing tough budgets to cope with bailing out the banks in the recession.
Prime Minister Gordon Brown and Chancellor Alistair Darling have already warned that the UK faces some tough spending choices and many financial observers feel that taxes must rise as well.
UK VAT returns to 17.5% at the end of the year and the controversial 50% income tax rate for those earning more than £150,000 comes in from April.
Generally, the UK pre budget report is announced in November – but the big issue for the government is whether the measures will actually be put in to place due to the forthcoming 2010 General Election.
