If you own property in Spain, then you need to be aware of the impact of Brexit.
The problem that arises is that within Spain’s tax law there is a clear distinction between EU/EEA and non-EU/EEA countries, and the way in which certain taxes are applied can vary significantly.
This blog provides a brief overview of three key areas of tax, however, there are a number of other areas to consider and understanding the impact of the changes on your position is key.
If you are an EU/EEA citizen, rental income is taxed in Spain at 19%. Relief can also be claimed for certain expenses incurred, in a similar way to the UK. However, as soon as Britain leaves the EU/EEA, British residents receiving Spanish rental income will not be able to claim the expenses and will instead be taxed at a flat rate of 24%.
The double tax treaty between the UK and Spain will allow relief for offsetting tax, however in many cases the Spanish tax could be higher than the UK liability and therefore not all of the tax will be relieved.
Capital Gains Tax (CGT)
CGT is assessed on assets, on the unrealised gains, when an individual leaves Spain. If they move to an EU/EEA country this tax can be deferred until the asset is sold, or for 10 years.
However, this option disappears if they decide to move to the UK after Brexit. For some, this could prove very expensive and they may not have the cash available to pay the liability.
In addition, if you sell your main home in Spain and reinvest the proceeds in a new home in the EU/EEA, then you are exempt from CGT. But again, this option is removed after Brexit if you buy your new home in the UK, you will pay CGT on the Spanish property sale.
In Spain, there is a gift tax system which taxes beneficiaries rather than the estate. In addition, EU/EEA residents get to choose between the Spanish State system or the appropriate autonomous region’s system.
The various regions’ tax laws vary substantially, with certain regions tax laws giving significant exemptions, which can be very beneficial. However, after Brexit, UK individuals will not get this choice and will have to apply the State’s tax regime, which in many cases is less beneficial.
With Spain being a popular country for British residents to own a holiday home, and for British expats, whatever deal is or isn’t agreed, it is clear that there will be tougher tax implications to face.