TAX IMPLICATIONS AFTER BREXIT FOR BRITISH CITIZENS WITH PROPERTIES IN SPAIN

The main consequence of Brexit will be the loss of EU citizenship for British citizens. The uncertainty for these citizens in terms of how this will affect their property ownership in Spain or how they will be affected by the exit from the EU from a fiscal point of view is a source of great concern.

The Non-Resident Income Tax Law expressly distinguishes between EU / EEA citizens (EU / EEA status) and citizens residing in the rest of the world (Non-EU / EEA status). The advantages for citizens belonging to countries within the EU are clear and must be taken into account.

It should be noted that a citizen (individual) whether resident in an EU country or resident in a country outside the EU, and who owns a property in Spain, is subject to the same taxes, since the tax obligation is inherent by the very fact of being a non- resident in Spain. To be specific, being by definition a “Non Resident”, you must pay taxes for:

– Income tax for non-residents for income attributed to real estate in urban areas

– Income tax for non-residents for rental income (real estate capital returns)

– Capital gains derived from the sale of real estate.

Based on this premise, we can differentiate in summary form, the differences in taxation between a resident or citizen in an EU country and a resident or citizen in a country outside the EU as follows:

As can be clearly seen in the table, the main consequence is that the tax rate will rise from 19% for citizens residing in EU countries, Iceland and Norway, to 24% which will come into force once the UK leaves the EU after Brexit .

Additionally, in relation to Capital Gains Tax relating to the sale of a property in Spain, the exemption in the case of reinvestment in another home by EU taxpayers, Iceland and Norway will no longer apply for British citizens.  Up to now, a British citizen selling their permanent residence in Spain could exclude from their tax declaration any capital gains obtained from the sale of what constituted their permanent home in Spain, provided that the total amount obtained from the sale is reinvested in the acquisition of a new permanent residence. This exemption will cease once the UK becomes a country outside the EU.

Another consequence is that we will NOT be able to deduct expenses provided for in article 24.6 of TRLIRNR (the name of the new tax law for Non-Residents’ Income Tax) by means of which a taxpayer resident in an EU country can deduct from Non-Residents’ Income Tax, in respect of rental income, expenses directly related to said property such as maintenance, cleaning, advertising, rental management, community fees, supplies, legal expenses etc. In addition, any expenses related to home improvements or the purchase of furniture and electricity can be deducted. They are deducted via annual amortization based on the number of rental days. The maximum deduction period is 4 years.  So basically, in the event of an owner having made an investment or home improvement, the fact that it can be included, will reduce or cancel the benefit that is taxable in terms of the rental income.

Mojácar, on the 15th of January 2020.

Maria  José  Arroyo, Abogada