A guest post by Alex Radford of My Lawyer in Spain, based in Marbella, Malaga with whom we have collaborated with in the past, and more importantly has written an article which is worth a few minutes of your time. Alex can be contacted on +34 951 203 094 if you would like to speak with him, or of course Steve or I (Barry) would also be delighted to hear your thoughts / comments. Anyway, read on.
On 29 March 2019, the UK is expected to leave the EU, with or without a deal. There are many different types of potential deals being floated around at the moment by the various Westminster political parties and the EU is warming to Theresa May’s Chequers plan or parts of it. However in this article I consider how a Brexit no deal would affect British owners of Spanish property. Initial details of the ‘no deal’ Brexit have been issued by the British Government here with Theresa May advising more are to come.
It is important to distinguish between British residents in Spain and those who are not residents. If someone lives in Spain for more than 183 days a year, then they have an obligation to submit a Spanish tax declaration the year after they arrive between May & June. They will pay tax in Spain on their worldwide assets and income. The tax rates for income and inheritance tax for British tax residents in Spain is unlikely to change. If you live in Spain for more than 183 days, become a Spanish resident before 29 March 2019 and submit your tax return as and when it falls due.
If you are looking to purchase a Spanish property as a second home and do not intend to spend more than 183 days in Spain, then you will be considered a non Spanish tax resident owner of Spanish property. As a non resident you will be able to buy a Spanish property and to continue to use your property. The buying costs will remain the same for residents and non residents. Currently an American buyer of Spanish property would pay the same purchase costs as a French or British buyer.
NON RESIDENTS INCOME TAX (NRIT)
The year after you have purchased a Spanish property a non-resident owner would pay what is known as NRIT. This is a notional tax on Spanish property ownership. NRIT is calculated using the taxable value of the property and then a % of this is applied to calculate the tax due. Currently for EU nationals the rate is 19%. For non EU owners of Spanish property, the rate is 24%. If there is no Brexit deal with the EU, we expect British owners will pay the higher rate of 24%. Based on a Spanish property with a taxable value of 200,000 euros, an EU resident would pay 418 euros the year after purchase and a non EU resident 528 euros.
SPANISH INHERITANCE TAX (IHT)
IHT is paid in Spain by the heirs who inherit the Spanish assets and each heir will have a personal allowance based on their relationship with the deceased and their pre-existing wealth. A son, daughter or wife, would pay less IHT than a cousin or aunt inheriting Spanish assets. The IHT rates across the 17 autonomous regions vary greatly. For example in Andalucia a son inheriting assets from a deceased parent with no pre-existing wealth will have a personal allowance of 1 million euros. In the Balearic Islands, the son would only pay 1% of the value of the asset inherited. It is expected that these discounts and allowances will initially disappear in the event of a non Brexit deal and allowances will be similar to non EU nationals which for children and spouses is 15957 euros.
We say initially disappear as Spain has various legal fronts open against it for treating EU and Non EU Nationals discriminately when it comes to IHT. It is likely that a Court, in due course, may find Spain to be behaving discriminately in relation to this tax and order them to apply the same rates to EU and Non EU nationals which would be welcome news for British heirs of Spanish assets.
In addition to the taxes set out above, we expect Spain may insist that Brits living in Spain renew their residency on an annual basis and the requirements for residency may become more onerous. The requirements may also become stricter when applying for a Spanish tax number as a foreigner (NIE) or opening a bank account. It will be interesting to see if a Court Judgement obtained from a UK Court for example ordering the sale of a Spanish property in divorce proceedings, will still be relatively straight forward to enforce in Spain post Brexit as it is now.
Healthcare and cover is of concern to Brits visiting and living in Spain. Those visiting Spain for their holidays are best advised to have travel insurance in place that provides medical assistance and repatriation in the event of an accident. Those living in Spain now should register with Social Security before 29 March 2019 or put in place private medical cover.
If you have decided to move to Spain, then you will be joining hundreds of thousands of British owners of Spanish property who enjoy their new lives in Spain. Post Brexit there will be some changes but in our opinion and, speaking with experience as someone who moved to Spain when Spain was not a member of the EU, these changes will be minimal and should not put you off your dream of either owing a Spanish property or living in Spain.
Alex Radford is an English Solicitor and Spanish Abogado who has lived in Spain for more than 28 years. He is a Partner of My Lawyer in Spain.
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