While there has been much speculation in the media about the consequences of Brexit, most of this has been from a British perspective. This is to say it has mostly centered around how British legislation will change after Brexit. Frustratingly, the majority of this speculation has been followed by the conclusion: “no one really knows!”
People interested in buying property in Spain or already doing so have a lot more certainty about their treatment in the country after we leave the EU at the end of March (if indeed that date is not pushed back). In Spanish law, there’s a clear distinction between EU/EEA and non-EU/EEA citizens. The way that certain taxes are applied differs significantly for each. Here are a couple of the tax changes for EU/EEA citizens post-Brexit that we expect to have extensive impacts:
Brits – as EU/EEA citizens – are currently taxed at 19% on rental income after certain reliefs for expenses are incurred, much as in Britain currently. However, when Britain leaves the EU, British citizens will no longer be able to claim this. Expenses, then, will incur a flat rate of 24%.
There is a double tax treaty between the UK and Spain which might allow some relief. The double tax treaty determines which country you are regarded as resident for the purpose of taxes covered by the agreement. Despite this, it’s likely that the Spanish tax will be higher than the UK liability, so not all tax will be relieved.
Under Spanish state law, beneficiaries are taxed rather than the state. In addition to the state system, autonomous regions have their own inheritance tax laws. These vary greatly, with certain ones giving significant exemptions which can be very beneficial. As EU residents, British citizens can currently choose between the state’s tax regime or the relevant autonomous region.
Post-Brexit, however, UK citizens will no longer have this choice and will have to apply the state’s tax laws which are, in many cases, far less beneficial.
Because Spain is the most popular European destination for British expats, the fact that Spanish taxes apply differently to non-EU citizens will have wide-reaching impact. Whatever deal (or no deal!) the UK ends up with, it’s clear that Brits with Spanish connections will have tougher tax implications to face.