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‘It’s absurd’: How Britons who let out properties in Spain will see taxes triple after Brexit

Spain’s Inland Revenue is preparing to hike taxes for non-resident British homeowners who rent out their properties in Spain after December 31st 2020.

'It's absurd': How Britons who let out properties in Spain will see taxes triple after Brexit
The beautiful coastal town of Cadaqués on Spain's Costa Brava. Photo: Elektra Klimi/Unsplash

UK citizens who don’t live in Spain but let out a property in the country will no longer be able to dock off expenses from their tax declaration once they become non-EU citizens.

The measure relates to the IRNR (Non-resident Income Tax), which for EU residents is 19 percent on net income and for non-EU is 24 percent.

Crucially however, foreign non-resident homeowners from the EU, Norway and Iceland can claim back many more expenses (mortgage interest, insurance, IBI, community fees etc) which non-EU resident property owners cannot.

For example, an EU resident who makes €1,000 a month in rental income from a property in Spain will end up paying €779 annually in taxes after deductions, whereas a non-resident from a non-EU country would pay €2,880 a year in IRNR tax for the same earnings and time period.

This means that British second-homeowners who aren’t officially residents in Spain after December 31st 2020 will be treated the same as American, Russian, Chinese and any other third-country property owners who don’t have fiscal residence in an EU country.

The measure has been confirmed in Spain's “Agencia Tributaria” (Tax Agency) website under the headline “Consequences of Brexit on Non-Resident Income Tax from 1 January 2021”.

According to Spanish government data, there are between 800,000 and a million UK citizens who own a property in Spain but only 300,000 to 400,000 Britons registered as residents (these figures could be changing as the Brexit deadline fast approaches).

“The differences in taxation between member and non-member landlords are absurd and unfair,” tax lawyer Alejandro del Campo, partner at DMS Consulting in Mallorca, told The Local.

Del Campo, who has a large portfolio of foreign clients, appealed to the European Commission in 2018 for this discriminative clause to be addressed.

Back in 2008, Brussels warned Spain that their IRNR tax “restricts the free movement of people and workers, the free provision of services and the free movement of capital between countries”.

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 Around 500,000 Britons with properties in Spain will start paying more tax in 2021. Photo: Anders Nord/Unsplash

Although the discriminatory tax conditions no longer apply to EU residents with second homes in the country, this Spain-specific law still makes a distinction between EU and non-EU property owners.

“Such regulations manifestly and seriously violate European Union Law, which has priority and is directly applicable, and it is the obligation of the Spanish Courts, and also of the Spanish government itself, to make sure they’re not applied”, argues del Campo.

Spanish legislation also sets out big differences between non-resident landlords and resident landlords when it comes to tax deductions.

Whereas resident owners can apply a reduction of 60 percent of the net rent income on long-term leases before tax is calculated, non-residents can’t.

Brussels also announced back in March 2019 the initiation of an infringement procedure against Spain for this matter.

Property Rental Income Tax is one of several taxes that can apply to non-resident property owners in Spain along with inheritance tax, wealth tax and capital gains tax, although fiscal obligations vary between regions.

As a general rule however, any income which arises in Spain is considered taxable.

And when it comes to owning a property in Spain, tax has to be paid on it regardless of whether it’s being rented out or not.

Non-residents who are renting out a property in Spain must declare their earnings by submitting form 210 on a quarterly basis.

“It remains to be seen if Brussels will initiate another infringement procedure against Spain for this serious discrimination against non-residents,” Alejandro del Campo concludes. 

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Member comments

  1. It’s what they voted for and now the chickens are coming home to roost for many of them. And on top of the non-EU taxes that will be payable, they won’t be able to come and spend the 6 months of winter in their Spanish bolt-holes either! I just feel sorry for all those people who did not vote, nor want, Brexit!

  2. It is perfectly fair – it is what other non eu nationals have to put up with, I see no reason why Brits should be any different now they are no longer in the EU. The argument for the actual law being an issue it would be easy to agree it is punative on non eu citizens , however no one is forced to purchase property in Spain.

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For members

BREXIT

INTERVIEW: The lawyers calling for a better visa for British homeowners in Spain

A group of lawyers is campaigning for a new visa which would allow non-resident British second-homeowners in Spain to freely enjoy their properties post-Brexit without having to show the high level of savings currently required.

INTERVIEW: The lawyers calling for a better visa for British homeowners in Spain

As most Britons are now fully aware of, since Brexit came into force, UK nationals who aren’t EU residents can only spend 90 days out of 180 days in Spain and the Schengen Area.

This has proven very problematic for Britons who own a second home in Spain who, when purchasing their Spanish properties, were under the impression they would always be able to split their time freely and flexibly between the UK and Spain without having to become Spanish residents (as long as they respected Spain’s residency and fiscal rules).

It used be an ideal situation for these ‘part-year dwellers’, the best of both worlds some may argue, but the UK’s exit from the EU has complicated things enormously for them. 

Estimates based on Spanish government data suggest that in 2020 the number of Britons who owned property in Spain was anywhere between 800,000 and 1 million.

There are now 407,000 UK nationals who are residents in Spain in 2022, and although there is no exact data on the number of Britons who own or rent property long-term in Spain without being residents, it could easily be in the hundreds of thousands. 

READ ALSO: Is it true Britons are leaving Spain ‘in droves’ after Brexit as UK tabloids claims?

They are undoubtedly of great economic importance to some parts of Spain, as evidenced by the Valencian government’s announcement last November that they would push the national Tourism Ministry to make it easier for non-resident British nationals to spend more than 90 out of 180 days in the region without having to apply for a visa.

There hasn’t been a public update on this front since, but Spanish law firm Costaluz Lawyers has recently put the issue back on the table, proposing a new type of visa for British second-home owners. 

The Local Spain spoke to María Luisa Castro, the lawyer who’s been leading the campaign, to learn more about it.

“We propose a new visa that caters to British property buyers who want to live in Spain but don’t have the necessary funds for the current visa options,” Castro explained. 

“We’d like to make it very simple with just two main requirements. Firstly, applicants would have to show that they have owned a property in Spain for at least three years and secondly that they have proof of an income of at least €1,130 a month, roughly half the funds required for the non-lucrative visa”.

Castro also stressed that as part of this potential visa, applicants should have to fulfil conditions for health insurance and have a clean criminal record, a standard practice for most Spanish residence visas.

“But the main condition would be property ownership and sufficient funds,” Castro emphasized.

READ ALSO: What are the pros and cons of Spain’s non-lucrative visa?

The campaign calls on British second homeowners to sign a petition to get the Spanish government to listen to the proposal and meet demands.

“We need 500,000 signatures in order for the issue to be discussed by the Spanish government, but we are also gathering signatures to give these people a voice and create awareness. We hope to be able to lobby both the UK and the Spanish governments to start bilateral negotiations” she explained.

Castro believes that there is definitely a need for this type of visa, especially for Britons, who now have to deal with stricter rules and have fewer options since they became non-EU nationals after Brexit.

“There are thousands of British property owners in Spain who bought their properties many years ago as second homes, but also as a place for future retirement or for health reasons,” she said.  

Crucially, even though the petition states non-EU citizens, Castro believes that it should really only be made available to Britons.

“It is not simply the fact that they are homeowners that means they should be considered for a new type of visa, but the fact that they had full-time ownership rights in the past, which makes the current restriction a loss of acquired rights”.  

In other words, Castro argues that those from other non-EU countries bought properties in Spain knowing that they could only stay 90 days out of every 180, but those from the UK bought them on the basis that they would have greater flexibility in this regard.  

“We hope that a visa which requires proof of finances, plus the evidence of being a homeowner with a retirement plan in Spain will be sufficient,” she said.

Another lawyer, Fernando del Canto, from Del Canto Chambers law firm, has previously argued that ownership plus health and retirement associated rights are being infringed upon by the Schengen limitations as per the European Human Rights Convention (EHRC). “A bilateral or reciprocal agreement between the UK and Spain on this particular matter is needed,” he said. 

The EHRC states that “every natural or legal person is entitled to the peaceful enjoyment of their possessions. No one shall be deprived of their possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law”.

Judging by the above, it is open to interpretation as to whether it means that Britons’ rights are being infringed upon or not.

Nonetheless, Castro believes that the 90-day rule has had a huge negative impact on British non-resident homeowners and on Spain itself.

“We are frequently contacted by clients desperate to keep staying here for longer periods, as part of an acquired lifestyle and for health reasons. Now they need to explore the possibilities of the non-lucrative visa, which on many occasions, they cannot afford”. 

She believes there is a risk that Britons could stop buying in Spain, “particularly those who bought a property for retirement”, and that many of her British clients have already felt forced to sell their Spanish properties because of Brexit limitations.

READ ALSO: What worries British second home owners in Spain most about Brexit

Britons have historically accounted for the largest group of foreign property buyers in Spain. In 2018, they represented 24.3 percent of the market share. The figure dropped to 20 percent in 2019 and by late 2021 Germans had surpassed Britons as the main foreign buyers in Spain.

This however may have had more to do with Spain’s coronavirus restrictions for non-EU travellers and the UK’s own complex traffic-light system than only as a consequence of Brexit, as in early 2022 UK nationals were back at the top of the property podium again.

So despite the new setbacks, it appears that Spain is still an attractive location for budding British second-home owners, but perhaps more so now for those who can afford the golden visa or non-lucrative visa. 

But how likely is it that such legislation will be approved?

READ ALSO: Can Spain legally offer more than 90 days to Britons?

Castro firmly believes that the Spanish government will listen to foreign homeowners’ demands. “If we get a good number of signatures and the UK government is also lobbied, it will create awareness. Retired people are an increasing source of economic strength for our country.

“Currently, only those buying properties over €500,000 can apply for residency based on property purchase (through the golden visa). Other EU countries have lower financial thresholds”, she explained.

READ ALSO: What foreigners should be aware of before applying for Spain’s golden visa

Castro encourages second homeowners to do whatever they can to help this visa proposal become a reality, as well as signing the petition.

She advises them to make their voices heard through blog posts, newspaper articles and writing to local politicians.

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