So, here I am on the 9th of November 2016 speaking about how things may change for UK citizens when the UK leaves the EU. Clearly I can only make a series of educated guesses, as at this stage the government is keeping its cards very close to its chest as to what it intends to attempt to negotiate, the UK parliament may have an important say in any event, and we certainly have no idea of how the EU will respond or what the final position will be. That said, what I can do is to look at what is likely to be the most extreme change in each aspect of life for those who either live in Spain currently, or who are hoping to live here.
Whether you’re looking at buying and selling property in Spain, or your continued ownership of property here, inheriting property located in Spain, or moving to Spain to live, whether to work or to retire, it’s likely that whatever “Brexit” finally looks like, there’ll be consequences to grapple with. In this series of videos I’ll be taking you through the current position, as well as what I consider to be the worst-case scenario in respect of each of these areas.
Buying property in Spain - purchase tax
This video will focus on property ownership in Spain for Brits and your continued ownership of property here, if you’re not permanently resident in Spain. Currently, when UK citizens purchase property in Spain they have to pay tax according to whether the property is a new property or a resale property. If the property is a resale then they have to pay purchase tax to the Spanish autonomous community in which the property is situated, which may be at a rate of between 6.5% and 11% of the purchase price, depending upon in which of the 17 autonomous communities the property is located. If the property is new and is being purchased directly from the developer, then in addition to the purchase price the UK national, or anyone else for that matter, has to pay VAT of 10%, or 7% in the Canary Islands, directly to the seller. In addition, the buyer will need to pay a stamp duty of between 0.5% and 1.5% of the purchase price, again depending upon the autonomous community in which the property is located.
The UK citizen purchasing property in Spain has the right to own the property, to let the property within the rules that apply to Spanish nationals, and in due course to sell the property. When analysing the worst-case scenario of Brexit I find it most useful to compare the current position for citizens of EU member states with the current position for US citizens, as clearly they’re certainly not citizens of an EU member state. So, we can say that in terms of property purchases, the position is identical for UK citizens and US citizens. In fact, the position is identical for Spanish nationals also. That means that whatever happens once the UK finally invokes Article 50 of the EU Treaty, and whatever deal is negotiated with the EU, or between the UK and Spain on a bilateral basis, it’s extremely unlikely that the rights of UK citizens to own, rent, and sell Spanish property will change at all.
Find out more about repossessed property in Spain.
Selling property - tax in Spain
If you are selling a property in Spain, you may need to pay Plusvalia Municipal and Capital Gains Tax. These taxes can be a percentage of the sale, ranging from 19-24%, or can be calculated by the local authority based on other criteria.
Spanish property - IBI
Once you own Spanish property, there are of course expenses that must be met, as one would expect anywhere in the world. In Spain the main on-going tax to be paid by non-resident property owners who are not letting out their property is an immovable property tax referred to in Spain as IBI, that’s I.B.I. It is akin to the tax, known in Britain as Council Tax, or as rates in Northern Ireland. The tax payable is calculated by the local municipality and is based on a value determined by calculating both the value of the land on which the property is built and the value of the construction itself. That value is known in Spain as the “valor catastral”, or cadastral value. The “catastro”, or cadastre in English, is an official record of the owners of land and buildings and of the amount and value of the land they own, used for calculating the amount of tax owed. All property owners, whether they let their properties or not, become liable to IBI on the 1st of January each year, but they are not required to make payment of the tax until the invoice is issued, usually between May and August. The IBI is exactly the same whether you’re a Spaniard, a citizen of an EU member state, or a citizen of the USA, Australia, or any other Nation State.
Spanish Non-resident Income Tax
As a non-resident owner of Spanish property who does not let the property you’ll also need to pay a non-residents income tax. This is based on a taxable amount equalling 1.1% of the cadastral value. If you are a citizen of an EU member state you’ll pay tax currently at the rate of 19%, so if you do the maths you’ll see that the tax payable will be approximately 0.2% of the cadastral value of the property. It’s often the case that the cadastral value is far lower than the market value of a property. So, a property with a cadastral value of say €150,000, which may have a market value of say €300,000 or more, will attract a non-resident income tax of approximately €313.50 each year, provided you do not let it out. A USA national, to use my example, would pay tax at the rate of 24%, so the annual liability would increase from €313.50 to €396. A difference, but perhaps not such a significant impact to your annual expenditure across the board. If, however, you do let the property out, then you’ll pay tax as a non-resident on your net rental income, after deductions for allowable expenses relating to the rental of the property. Once again, you’ll pay tax at 19% as a citizen of an EU member state and 24% if you are, say, a citizen of the USA.
Selling your Spanish property
When you come to sell your property you’ll have to pay a municipal tax, that being a tax levied by the local town hall on the nominal increase in value of the land on which your property sits. The Municipal Tax, called in Spanish the “Plusvalía Municipal”, is calculated in the same way no matter where you’re from. Another expense that’ll remain unchanged will be any service charge, or any charge for utilities that you may incur.
When you come to selling your property, then if you make a gain you’ll have to pay Capital Gains Tax. You’ll be liable to Capital Gains Tax in Spain on the net gain that you make. That gain will be taxable in Spain at the rate of 19% if you’re a citizen of an EU Member State, and at 24% if you’re say an American citizen. Moreover, you may well become liable to Capital Gains Tax on the same gain in your own country of residence. If that’s the case then you may need to benefit from any double taxation agreement between Spain and your country of residence.
Currently there is a double taxation convention between Spain and the UK. It’s a bilateral agreement, so has nothing to with the EU. Its effect is that in relation to a broad range of tax liability you don’t pay tax twice, on balance. That bilateral convention is unlikely to change to a great degree, if at all, no matter what the result of Brexit, particularly when you consider that the 1974 double taxation convention between the UK and Spain was renewed and became applicable in June 2014, so very recently indeed. In fact, you’ll need to take the double taxation convention into consideration if you let out your Spanish property, as tax will be payable in Spain and may also be payable in the country in which you are resident for tax purposes, usually the country in which you are habitually resident.
What tax do you pay if you sell a property in Spain?
When selling a property in Spain, Plusvalia Municipal and Capital Gains Tax are a tax that you’ll need to pay. This is usually a percentage of the sale ranging from 19-24%, or calculated by the local authority based on other criteria.
How can I minimise my liability to Capital Gains Tax in Spain?
It’s a good idea to seek impartial legal advice to determine whether there is a legal requirement to pay Capital Gains Tax on a property that you are selling.
How does Capital Gains Tax work in Spain?
When you come to selling your property, if you make a gain you’ll have to pay Capital Gains Tax. You’ll be liable to Capital Gains Tax in Spain on the net gain that you make. That gain will be taxable in Spain at the rate of 19% if you’re a resident of an EU Member State, and at 24% if you’re resident of a non EU Member State.
So, as you can see, while there are some differences between buying, owning and selling property as a UK citizen, or as a citizen of a country such as the USA, the differences are relatively minor and certainly nothing to be worried about. Of course, it’s essential to stay up to date and to know what impact Brexit does have finally. We’ll be publishing articles and releasing further videos on this subject as the UK’s departure from the EU develops. You’ll be able to access the information on our website, that is www.solicitorsinspain.com. You can also watch one of the other videos in this series, which focus on the potential implications of Brexit of inheriting assets in Spain, and the changes that Brexit may cause to your right to spend time in Spain. Please see our website for links to those videos.
If you have any queries that have not been covered in this video, or if you need any advice at all regarding Spanish matters, please contact me directly. My contact details are to be found on our website. Again, that’s www.solicitorsinspain.com. Thanks for watching.