2015 Tax Year: Treasury Raises Tax Rate On Second Homes

18 April 2016 – Cinco Días

The owners of second homes must pay tax on them in their annual income tax returns and many will incur a tax increase this year. The tax percentage on second home properties was fixed at 1.1% until now for homes whose cadastral values have been reviewed since 1994 and at 2% for homes reviewed before that date. The reference date now has been set as 2005, which means that more taxpayers will have to pay 2%.

The campaign for the filing of tax returns for 2015, which began last week, incorporates the new features of the tax reform approved by the Government, which mainly resulted in reductions in tax rates and tax brackets. Nevertheless, as a study published on Thursday by the Registry of Tax Advisors (REAF), an independent body formed by the General Council of Economists, shows there are also some changes that will harm the taxpayer. One of those affects the owners of second homes.

The legislation establishes that taxpayers who own second homes must pay a real estate tax on the basis of the general tax base. Until now, if taxpayers owned homes whose most recent cadastral review took place after 1994, they reported a tax charge in their tax returns equivalent to 1.1% of the cadastral value of their properties. For reviews before that date, the tax rate was 2%. For example, the owner of a second home with a cadastral value of €300,000, which was last updated in 1998, used to have to pay €3,300 (i.e. 1.1% of €300,000). From this year onwards, only homes whose cadastral reviews have been reviewed since 2005 may apply the 1.1% rate; all others have to apply 2%. This means that the owners of homes with valuation updates between 1994 and 2005 will incur a tax increase. In the case of the example described above, the owner of the €300,000 home will have to pay €6,000 from this year, compared with €3,300 that he previously recorded in his tax return.

Town halls are responsible for approving cadastral reviews. In theory, the more time that has elapsed since the last update, the larger the difference between a property’s cadastral value and its market price. For this reason, the Treasury has established a higher tax rate for homes with older cadastral values. In fact, the tax reform establishes that the 1.1% rate will apply to homes whose cadastral values have been reviewed within the last ten years. In other words, for the tax year 2016, the date for determining the application of the different rates (1.1% vs 2%) will be 2006. (…).

Original story: Cinco Días (by Jaume Vías)

Translation: Carmel Drake

Sareb’s Financing Costs Will Be €400m Lower In 2015

19 February 2015 – Expansión

Good news for Sareb. The company has not yet published its accounts for 2014, since it is still waiting for the Bank of Spain to define its accounting framework and whereby determine its final results. But the company, chaired by Jaime Echegoyen (pictured), has taken an important step that will help to improve its results in 2015, its third year of operation.

The bad bank has just renewed the debt that it raised to pay the rescued savings banks for the properties and developer loans that they transferred. Instead of cash, Bankia, Novagalicia (now Abanca), Catalunya Banc, Banco de Valencia, BMN, Liberbank, Banco Caja Tres and Ceiss received senior bonds backed by the State.

The bonds, whose interest rate is linked to 3-month Euribor and the spread on Spanish debt, had maturity dates of one, two and three years and are renewed automatically. The debt relating to the entities classified in the so-called Group 1 (the larger ones) was renewed in December and now (in February) it has been the turn of the Group 2 entities.

Thanks to improved market conditions, in particular, the decrease in the risk premium on Spanish treasury bonds, Sareb has significantly reduced the yield on these senior bonds to the extent that the average spread on its debt portfolio has fallen from 1.954% to 0.832%.

In this way, Sareb will reduce its financing costs by €400 million in 2015, according to the institution’s official calculations. In other words, with the renewal of this debt, the former savings banks will no longer receive this amount for the real estate assets they transferred to the bad bank, which will have a negative impact on their net interest income this year.

The decrease in the interest payments on this debt would have been even greater without the coverage that Sareb contracted over 85% of the portfolio through a swap, which establishes a fixed interest rate regardless of the evolution of Euribor. In this way, it protects its results from upwards movements in the base rate, but it also mitigates the positive effects of any downwards movements.

Repayment of €5,416 million

Sareb’s financing costs have also been reduced by the repayment of debt. The bad bank issued €50,781 million in bonds when it was created to pay the savings banks for their assets. Since then, thanks to the income generated from the sale of properties and loans, it has repaid €5,416 million of that balance.

The amount of debt repaid in 2014 exceeded the initial expectations of €3,000 million by more than €400 million. And Sareb expects that it will exceed its bond repayment forecasts this year as well, although it has not yet shared these forecasts with the market.

“Sareb is fulfilling its main objective, which is to manage and sell its portfolio of assets without generating higher costs for the taxpayer”, said the Chairman of the bad bank in the first ordinary meeting held by the Board of Directors in 2015.

His predecessor in the role, Belén Romana, used to repeat the mantra that reducing its own financing costs was one of Sareb’s priorities to pave the way towards sustainable profitability. Its financing costs amounted to €1,272 million in 2013 and decreased to €1,135 million in 2014. In all likelihood, this downwards trend will only accelerate from here on in.

Original story: Expansión (by Alicia Crespo)

Translation: Carmel Drake