What would Brexit mean for Brits who live in Spain and own Spanish property?

21 April 2016 | Tags: ,

Alex Radford, English Solicitor, Abogado and Partner with My Lawyer in Spain, and a resident in Spain for more than 25 years gives us his view on what impact a vote to leave the EU would have on Expats living in Spain and Brits who own Spanish property.

The referendum is on 23 June. If you have not registered to vote then I would strongly recommend that you do so by visiting the website www.aboutmyvote.co.uk.

The referendum to either leave or remain in the UE is a historic and once in a lifetime decision which will have a profound impact, one way or the other, on the future of the EU & the UK. Just like the Scottish referendum, the United Kingdom is showing the world what a great democracy our country of birth is.

If there is a vote for the UK to leave the EU then the UK will have a period of two years in which to negotiate its exit. Brits living in Spain for more than 183 days a year who present annual tax returns are considered Spanish tax residents. For the foreigners living in Spain who are Spanish tax residents, I do not anticipate that much will initially change. However for Brits not living in Spain for more than 183 days a year, I expect the burden of tax relating to capital gains tax, inheritance tax and non residents income tax to increase.

Why you may ask do I expect tax to increase? Well Spain in the past has had a tendency to tax Brits and foreigners, who are non Spanish tax residents, more than Spanish tax residents. This practice, quite rightly, has been brought to the attention of the European Court of Justice and Spain has been found to be discriminating against non Spanish tax residents.

On 6.10.2009 Spain lost a case brought by the Commission before the European Court of Justice (ECJ) in which Spain was found to be discriminating against non Spanish tax residents who paid 35% capital gains tax on a sale of a property as opposed to 15% paid by Spanish tax residents. Also a similar case was lost by Spain again in the ECJ when Spain was found to be discriminating against non Spanish tax residents for inheritance tax. Heirs and beneficiaries living in Andalucia for example, who were tax resident had a taxable allowance of up to 175,000 euros whereas non Spanish tax residents only had an allowance of up to 16,000 euros. The difference in tax on an heir inheriting a Spanish property worth 175,000 euros is approx. 23,000 euros. Of course this represented discrimination! Interesting to note that it was the European Court of Justice’s decisions which benefited Brits rather than the actions of the UK Government, and if there was a vote to leave the EU, the ECJ would no longer be looking after our interests.

If you own a Spanish property and do not live in Spain for more than 183 days a year, you pay non residents income tax on a yearly basis the year after purchase. Typically it represents about 0.5% of the value of the property. Currently that rate of tax is 19% for residents of the EU. If the UK were to leave the EU then this rate of tax is likely to increase to 24%, the rate that already applies to non EU residents.

Spain welcomed 68.1 million tourists last year of which 15.6 million were Brits. Between 800,000 and 1 million Brits own property across Spain. The Brits are an important and economically powerful market for Spain and the EU at large. Spain in all likelihood, would move quickly to strike a trade agreement with the UK to settle any nerves and ensure that we Brits continue to visit and invest in Spain. Also the British love affair with Spain is unlikely to fizzle out just because of a relatively minor increase in taxation. However it would be important for those negotiating a trade deal with Spain to ensure that the British people are treated the same as Spanish tax residents.

My Lawyer in Spain

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My Lawyer in Spain

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