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The effect of Brexit for UK nationals: the transition period and beyond

A guide outlining the effect of Brexit on the position of UK nationals in Spain, throughout the transition period and beyond.
Transcript: 

Hi. My name's Jonathan Eshkeri. In November 2016 we released a series of videos about how Brexit may affect UK nationals once we leave the EU. Here we are in March 2020. The Withdrawal Agreement has been signed by the UK government and by the Council of the European Union. We've had an opportunity to read the Withdrawal Agreement. We've left the EU. We're in the transition period, which is supposed to end on 31 December 2020. That means that currently, although the UK has left the EU, all of the EU rules and regulations that applied in the UK and in respect of UK nationals throughout the EU prior to the UK leaving the EU, still apply. Once the transition period ends, that'll no longer be the case, although we don't yet know the detail of all the rules that'll affect UK nationals throughout the EU after the end of the transition period.

A question I ask myself now is how much more certain are UK nationals of their position going forward in Spain, than they were in November 2016. My view is that there is some more certainty. Some things won't change at all. The process of buying and selling Spanish property will remain the same, as will the expenses relating to a Spanish property purchase. The expenses relating to the sale of Spanish property are likely to vary for UK nationals who aren't resident in Spain. That's likely because of changes in capital gains tax, which I'll come onto a little later on.

After the end of the transition period, moving funds to and from Spain will remain the same, so if you want to purchase a Spanish property, or after you've sold one, you'll not have any trouble sending money to Spain for the purchase, or for the ongoing expenses, or sending money to the UK once you've sold the property. 

I'm often asked about how Brexit will affect inheriting in Spain. In fact, inheriting assets in Spain won't change at all for UK nationals after the end of the transition period. In Spain, rather than the estate paying inheritance tax, the tax is paid by the beneficiaries, by the people who receive the benefit of the estate assets. The net value of an asset that you inherit varies drastically according to the amount of inheritance tax you pay.

Until recently, Spanish residents and residents of EU member states paid inheritance tax at the same rate, but residents of all other countries paid inheritance tax at a higher rate, a clearly discriminatory practice, as the net value of a Spanish asset was lower for people inheriting who were resident outside of the EU and the European Economic Area, than for people resident within the EU and the EEA. Relatively recently the Spanish Treasury's begun to give effect to important decisions of the Spanish Supreme Court, which decided that it's unlawful for the country of residence of someone who inherits in Spain to have a direct impact on the amount of inheritance tax payable by them. That's because to discriminate in that way would be contrary to the principle of freedom of movement of capital, which is a fundamental right of EU law. So now, the same inheritance tax is paid by everyone, no matter where they're resident, and that includes the UK after the end of the transition period. The other expenses of inheriting in Spain will also remain the same for UK nationals, wherever they live.

The areas most affected by Brexit for individual UK nationals will be living and working in Spain and the ongoing ownership of property in Spain. In terms of owning and selling Spanish property, I mentioned earlier the question of liability to capital gains tax upon the sale of a Spanish property. Capital gains tax is payable on a capital gain. That's the difference between the acquisition value of an asset and the selling price of the same asset, less allowable costs relating to the sale. The acquisition value takes into consideration purchase tax and any other tax paid on the purchase price, as well as any Notary's fee and any property registry fee paid at the time of purchase. If there's a difference between the acquisition value and the net proceeds of sale, and so if there's a capital gain, the tax payable in Spain on that gain by Spanish residents and all other EU nationals is currently 19%. Non EU nationals not resident in Spain pay capital gains tax in Spain at 24%.

It's likely that after the end of the transition period UK nationals not resident in Spain will pay Spanish capital gains tax at 24%. That said, it's very important to remember that if you're resident in the UK and you make a capital gain in Spain, you're obliged to declare that gain to Her Majesty's Revenue and Customs, or HMRC, in the UK. Capital gains tax will be payable in the UK on the gain. Very helpfully, there's a Double Taxation Convention in place between the UK and Spain. One of the effects of the Double Taxation Convention is that individuals don't pay tax in both Spain and in the UK on the same capital gain. That means that if you've already paid capital gains tax in Spain on a capital gain made from the sale of a Spanish property, any tax that you've paid in Spain will be set off against any capital gains tax that you have to pay in the UK on the same gain. You'll have to be able to prove that you've paid the capital gains tax in Spain, but that's easy to do with the receipt that either you or your Spanish representative will receive from the Spanish tax agency when the tax is paid. The Double Taxation Convention between the UK and Spain has nothing to do with the EU, so Brexit will have no effect at all on that. 

Staying on the subject of Spanish tax at the moment, anyone who owns property in Spain is liable to Spanish tax on an ongoing basis. Even if you don't let your property at all and so don't receive any income from your Spanish property, you'll need to pay what's called non-resident income tax. The non-resident income tax is calculated based on the "valor catastral" of the property, similar to its rateable value, or its value for the purposes of the equivalent of council tax. Currently, tax is payable at the rate of 19% by EU nationals. The amount on which the 19% tax is payable, is usually 1.1% of the "valor catastral", although it can be 2% in certain circumstances.

That means that on a property with a "valor catastral" of 100,000 Euros, which may be a property with significantly higher market value, the annual non-resident income tax payable would be 209 Euros. After the end of the transition period it's likely that UK nationals will have to pay that tax at the rate of 24%, meaning that the annual non-resident income tax would be 264 Euros, a difference of 55 Euros each year. So, not a huge difference in my example. If you do let your Spanish property to tenants, then you'll need to pay tax at the same rate on the net income received. As with capital gains tax, any liability to tax in Spain on the net income received can be set off against any liability to income tax payable in the UK on the same income. So you won't pay capital gains tax or Spanish income tax twice. 

The most noticeable difference for UK nationals after the end of the transition period will be their ability to live in Spain, whether as a retiree, or as an employee, or as a self-employed person. Provided a UK national is lawfully resident in Spain before the end of the transition period, that's by 31st December 2020, whether working in Spain or not, they'll be entitled to remain in Spain in accordance with the EU rules of freedom of movement. Once a UK national has spent five years in Spain lawfully, without an interruption of more than six months, or up to a year in special circumstances, they'll be able to apply for permanent residence in Spain. The five-year period will take into consideration any period of residence prior to the end of the transition period. After permanent residence is obtained, the permanent residence will be maintained, provided the UK national isn't absent from Spain for more than five consecutive years. After ten years' continuous residence in Spain the UK national will be able to apply for Spanish citizenship.

Even if a UK national is already living in Spain lawfully and so has an existing right of residence in Spain, the Spanish authorities may require the UK national to apply for the right of residence. That's likely to be an application for a residence card, similar to residence cards issued currently to non-EU nationals. An application for residence status must be made within six months from the end of the transition period, a period that'll be extended in extenuating circumstance. To be clear, UK nationals already lawfully resident in Spain prior to the end of the transition period, will have a right to the Spanish residence card, but they'll still need to apply for it. At the moment, in March 2020, the Spanish authorities haven't even decided on the colour of the residence card, let alone the process for obtaining one, so we'll have to wait for a little while to know how the new system for application for residence cards will work.

Those UK nationals who are hoping to rely on their lawful residence in Spain to establish a right to remain before the end of the transition period, should consider carefully what constitutes lawful residence in Spain for a UK national. An EU national has a right to remain in Spain, and in fact in any host country within the EU, for three months. Beyond that period an EU national may remain in Spain provided either that they're working here, whether employed or working for themselves, that they can support themselves, or that they're studying here. Hence, the right of a UK national to remain in Spain beyond the end of the transition period will depend on them complying with the rules of freedom of movement. 

And finally, I can't speak about Brexit without speaking about healthcare, an extremely important issue for everyone. If you're a UK national living in Spain, or if you move here permanently before the end of the transition period, you'll have life-long healthcare rights in Spain, as you do now, provided you remain resident in Spain. That's the published advice of the UK government. Very importantly, the right of healthcare for UK pensioners intending to remain in Spain beyond the end of the transition period will not be affected and the EU Regulations will continue to apply to you in that regard. That's the published advice of the Spanish government. 

I recommend that for more comprehensive information as to healthcare in Spain, you visit the UK government website at www.gov.uk/guidance/living-in-spain. From there you'll find a link to the Spanish government website, which provides very useful information as to access to healthcare in Spain. Those who don't reside lawfully in Spain prior to the end of the transition period, but who later wish to live here, will be able to apply to do so, whether to retire in Spain, or to work here, either for yourself or for someone else. We're not as yet certain what the rules will be for UK nationals wanting to live in Spain after the end of the transition period. What we do know is that prior to Spain's accession into the EC in 1986 there were a great many UK nationals who lived and worked lawfully in Spain. Although the right to reside won't be guaranteed as it is presently, it will become a reality for a great many UK nationals who'll certainly find a legitimate route to pursuing a life in the sun here. 

For more information, please be in touch with me directly. Thanks for watching.

Testimonials

I wanted to make sure everything was done properly and my interests protected. E&G Solicitors in Spain handled everything once I decided on the property. Communication was very good and very prompt, in person, by email and over the phone. I think the service was beyond expectations, even following up on my case over a year after the purchase to ensure everything was in order.

Lene Ostergaard, Denmark