The year 2016 seen a significant date for the UK when it exercised its right under Article 50 of the Treaty of the European Union to withdraw its status as a member of the European Union (EU).
The exit of the UK from the EU is now known as “Brexit”.
Since “Brexit” has hit, it has left lots of uncertainties for UK citizens, particularly when buying and selling property in Spain.
What will “Brexit” mean for property buyers and sellers?
Nothing has as yet been decided, as it will take the UK a 2-year process to actually exit the EU. There is no certainty as yet of how the EU will respond to the UK’s exit although we can look at the possible expectations, consequences and even worst-case scenario.
The Current Position – Buying Property
Currently EU citizens have the right to own, rent and sell property in Spain. Whether the properties are bought as new or being resold, both have taxes to pay to the Spanish Autonomous Community, the rate of which depends on the location of the property.
In addition to this, there is currently also 10% VAT payable to the seller and stamp duty (rate dependent on the location of property) payable by the buyer.
Comparing the current position for EU citizens with US citizens, therefore non-EU citizens are identical to that of current Spanish nationals.
Regardless of what will actually be decided post-Brexit, it is extremely unlikely that the rights of UK citizens to own, rent and sell properties in Spain will differ from that already in place.
The Current Position – Once Property Owned in Spain
Following property being purchased and subsequently owned, there are currently several taxes payable. The main tax to non-residents or non-letting property owners is called IBI. IBI is the “Impuesto sobre Bienes Inmuebles”, which is translated as ‘Property Tax’. This is a municipally levied tax, which varies in rate dependent on the location and Cadastral Value of the property. Such tax is similar to the ‘Council Tax’ paid in the UK or the ‘Rates’ paid in Northern Ireland.
The ‘Cadastral Value’ is not a legal record of ownership like the Land Registry, but is an estimate of the capital value of the property, which is used as a base figure for various property taxes, one being IBI as referred to above.
IBI rates are the same no matter whether the property owner is an EU or non-EU resident. This, therefore, means that there would be no difference in tax for non-EU citizens post-Brexit.
There is also at present a ‘non-resident tax’ which is payable by non-residents. The rate of this tax again relates to the cadastral value of the property. The tax rate here does vary depending on whether the property owner is resident or not in the EU. EU residents will pay at the rate of 19% whereas non-EU residents will pay at the rate of 24%.
When the UK does exit from the EU, the rate for a non-resident property owner would be 24%. The rate percentage is slightly more although not as much as one may think and could be as little as an additional 100 euros per year to pay.
The Current Position – Selling Property in Spain
When owners decide to sell property further taxes are again payable.
Municipal tax is a tax levied by the local town hall on the nominal increase value of the land in which the property sits. The rate of this tax is calculated the same no matter whether the owner is an EU or non-EU resident.
Capital Gains Tax is a tax payable on the net gain of the sale of the property. It is currently the rate of 19% for EU residents and 24% for non-EU residents. Again it is an increase although nothing too major. In addition, owners could also be liable in their actual resident country for capital gains tax. However, Spain currently holds a bilateral double taxation agreement with the UK, which means people do not pay tax twice. This agreement has nothing to do with the EU and is unlikely to change no matter what the outcome is with Brexit.
In short, the current differences between EU residents and non-EU residents are minor and soon to be UK residents should not worry.
Non-EU residents have always bought in Spain and still do without a problem. It’s extremely unlikely that Spain would want to target UK citizens by making them pay more taxes, they don’t currently for other non-EU citizens so why would they to UK citizens.
Spain is a great place to buy and sell a property and exiting from the EU will not change this. The British adore the amazing weather; beautiful beaches and friendly culture of Spain and this will not change with ‘Brexit’. Yes, there may be some minor changes but such changes will be those that the UK will put up with!
If you’re looking to purchase a property in Spain then please do not hesitate to contact our team.