As the date for the UK to leave the EU comes closer, and considering the possibility that no agreement will be reached, we would like to comment the tax implications of a hard Brexit for the taxes to be paid after March the 29th of 2019.
1. Non-resident taxation of my second property
Holding the ownership of a property in Spain:
Law foresees that there is a fictitious revenue for this and probably will be the normal reason why you have to make your tax declaration of non-resident.
How much tax should I have to pay in the holding of ownership of a property in Spain?
The fictitious revenue that comes from this ownership is estimated by law in
- 1.1% over the value given by the Town Hall on the council tax bill if that value has been reviewed in the last 10 years
- 2% over the value given by the Town Hall on the council tax bill if that value has NOT been reviewed in the last 10 years
And over that amount:
- 24% tax for people out of the UE or the EEA zone (LIECHTENSTEIN, NORWAY AND ICELAND)
- 19% for residents in the UE or in the EEA zone
So a hard Brexit would suppose that a British citizen that would be paying this tax on the rate of 19% would go to a 24% from that moment on.
2. Non-resident taxation for hiring my property
In this case the consequences of a hard or a soft Brexit are very very different for the rental:
Hard Brexit: no expenses are allowed to be deductible at all and the tax rate would be 24%
Soft Brexit: expenses are allowed to be deductible and the tax rate would be 19%
Usually, according with British-Spanish Treaty to avoid double taxation, if you are charged back in the UK for similar taxes that would include these revenues, you could deduct back there what you have paid here in Spain, check with your tax advisor back in the UK.
3. I sell my property and now what?
In this case you should suffer the retention of 3% of the price that buyers must practice in case you were non-resident
From year 2015 on if the property had in the last two years the condition of your habitual dwelling and you have had a taxable capital gain you can avoid paying any tax if you reimburse the money into another property aimed to be your new habitual dwelling in the period of 2 years, or if you already bought in the past 2 years and you use the money to cancel the mortgage to buy it.
This tax benefit is only foreseen for citizens of the UE or the EEA, so in case of a hard Brexit no benefit would be acknowledged for this concept.
If the property is not entitle to this benefit, the normal way is to declared the capital gain deducting the 3% already paid into the tax office by the purchaser.
The taxation of the capital gain in any case is 19% (No matter hard or soft Brexit).
If losses you are entitle to the refund of 3%, in case you have had submitted and paid your non-resident tax of previous years. Otherwise tax office will set off debts.