Buying After Brexit? A Property Purchase Guide for UK Citizens

Despite Brexit and general real estate market volatility, UK citizens continue to show interest in the Spanish property market. Some wish to buy property in order to enjoy holidays in Spain, or they may be buying a property in Spain in order to obtain the right to work and live in this country. Either way, it is important to understand at the outset the implications of Brexit and how it might affect your long term goals and the difficulties you might need to deal with if you decide buy property in Spain after Brexit.

• On 29 March 2017 the UK formally triggered Article 50 - the formal process that a Member State uses to declare its intention to leave the EU.
• On 28 February 2018 a draft Withdrawal Agreement was published by the European Union to deal with, among other things, citizens rights and transitional arrangement.
• On the 24th January 2019 the EU and the UK signed the Withdrawal Agreement, with only a vote by the European Parliament the remaining requirement to complete the fundamental agreement to leave the Union.
• With the Withdrawal Agreement entering into force on the 1 February 2020, there then followed a Transition Period, which would allow the two sides to continue negotiating other aspects of the split, to end on 31 December 2020 at midnight (Brussels time).

While it remains to be seen whether a practical arrangement can be reached as regards intractable issues such as the Northern Irish border issue can be reached, the situation as regards citizens rights has now been settled.

There are a number of ramifications of the changes in legal status of UK citizens living in or moving to the European Union, and there is no doubt that for many, this effectively means an increase in the costs of buying property in Spain.

While UK citizens living in Spain up until the formal departure date of 31 December 2020, had the option to register their residency status in Spain, and continue to enjoy the same rights as they had previously enjoyed up to that date. These rights included the right to live and work in Spain, and the rest of the Member States of the European Union.

On the other hand, British citizens that arrived in Spain on or after the 1 January would have to apply for a visa if they wished to stay in Spain for more than 90 days in any 180-day period, as prescribed by the general rules on immigration to Spain of non-EU residents (covered by the visa rules of the Schengen area).

Not all British citizens buying property in Spain intend to remain in the country for more than this 90-day period allowed, and therefore the changes to residency status would not affect such property owners - property ownership in Spain is not restricted to Spanish and EU nations. British nations continue to be permitted to purchase property in Spain, just as any other nationality may do so.

However, the change in residency status does have implications in regard to the tax treatment of British nationals owning property, We discuss this in more detail later.

It is fair to say however that most British nationals buying property in Spain do wish to remain in the country for longer than 90 days in any 180-day period, and so this change in residency status does have real ramifications for those who wish to buy property in Spain after Brexit.

If you are a British national, and moving to Spain from the UK after Brexit and are buying a property in Spain to facilitate this, what are your options?

As a non-EU citizen, you would be required to obtain a visa, under the General Rules of Immigration of Spain. There are several visas available that permit only residency in Spain or, residency with the right to work in Spain. The most appropriate will depend on your personal circumstances.

Law 14/2013 is the legislation that makes it possible for foreign investors to have the right to residency and work in Spain. Known the golden visa in Spain, this is a residency visa, initially with a duration of one year. 

It is awarded to those investors who buy a property - or who are buying properties - with a purchase price of at least €500,000 that is located on Spanish territory. 

Should the applicant require more than one visa - for example, they wish their partner to be able to live and work in Spain, then they would need to invest in a property valued at €1 million. However, if the partner would only be living in Spain, and do not require the right to work here, then a single visa, coupled with a Family Reunification visa, would be sufficient.

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• Valid passport
• Likewise, Birth Certificate
• You must spend a minimum of €500,000 (net of taxes) on a property in Spain free of any loans. Any existing charge or mortgage must not bring the net investment below the minimum amount specified. For example, let's say you purchase a property valued at €650,000. Then any mortgage may not be above €150,000. If you purchase a property together with a spouse, family member or other third party, the investment of each individual must be equal to or greater than €500,000, so you cannot obtain two visas with an investment of €500,000. To obtain two such visas, an investment of €1,000,000 is required.
• Evidence of the investment is demonstrated by production of the property deeds. The deeds must display the purchase costs of the property, and the deeds should be accordingly registered in the Land Registry. The deeds should be presented together with a certificate demonstrating that no additional mortgages have been granted on the property.
• You will need to open a bank account in Spain with a minimum balance of €25,000 and the existence of the account must be verified by a certificate issued by the bank.
• A certificate will be required showing that you are free of a criminal record, as issued by the relevant authorities and have been issued no more than 90 days prior to application.

Just like any Spanish national, if you decide to work in Spain, you must register with the social security system by requesting a social security number and registration in the system. This applies to those who work as an employee (if so, normally managed on your behalf by the employer) and to self-employed individuals.

Self-employed workers may make the application themselves or hire a professional to complete the process for them in the process of relocation to Spain.

Citizens who pay social security automatically have the right to use the Spanish healthcare system.

The alternative would be contracting private health insurance. There are several private health care companies in Spain. If you are planning to work as self-employed in Spain, different rules apply - Advocate Abroad offers a full service for those wishing to set-up as self-employed in Spain.

An option that would be interesting for those who wish to simply relocate or retire, without the right to work, may apply for a non-lucrative visa in Spain.

If you are earning more than €2,400 Euros on a monthly basis (whether based on a pension or any other kind of regular income) you can also apply for residency in Spain – though for non-working purposes only. This is known as a 'non-lucrative visa'.

If more than one person is applying (for instance you intend to come with your spouse/partner and children) the income required will increase by approximately €600 per month for each additional member.

You can also apply even if you do not have regular income, but simply have deposit/s in bank account/s over that amount on a yearly basis, so over €30,000 Euros for 1 member and an additional €7,200 (approx.) for each additional member.

Another option to get a residency visa that could allow you to work in Spain is provided by the Entrepreneur´s visa , under Law 14/2013.

This is a residence permit created for those non-EU citizens who want to open a start-up business in Spanish territory. Upon compliance with the requirements set-out in the relevant legislation, Spanish immigration law will grant you residency as a result of your business idea.

However, if you are starting business in Spain, bear in mind that the business must be truly innovative and the project is required to be aligned with the interests of Spain. In order to be accepted moving to Spain after Brexit, your project must fulfill the following conditions:

• It has to create employment for the country, at least in the long-run, and be a positive stimulus for the general Spanish economy and good investment opportunities.
• The business must involve a high level of technology and enhance the socio-economic development of Spain.
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Many people in the UK are entitled to an Irish or other EU passport as a result of being born there or indeed if a parent or grandparent was born in another EU country.

While this depends on the rules of the individual EU States, if a British citizen is able to successfully apply for an EU passport, they may apply for Spanish residency with all the typical rights to live and work here.

Once that application has been processed, their spouse and children may also obtain Spanish residency on the basis that their family member is resident in Spain (See ‘Have a family member in Spain, with which he/ she wishes to reunite' below). 

This is known as the Family Reunification visa and may be applied for even at the same time as the primary visa in some cases.

Should a British citizen become resident in Spain, then they are resident for tax purposes. However, even if the person buying a house in Spain after Brexit does not intend to become resident, there are a number of tax implications that flow from Brexit nonetheless.

This is a complex area since each person's tax liability depends on their individual circumstances. For this reason we have devoted an article to property tax in Spain. We briefly outline the main considerations below:

If you are resident in Spain then you are liable to the Spanish government to pay taxes on your worldwide income. This would include income tax if you are working in Spain or rental income tax if you have income derived from investments or rental income from property outside Spain.

In Spain all tax residents must make a declaration of income once per year, by 31 May, covering income from the previous calendar year. So, for the income period of the 2022 calendar year, the income tax declaration must be made by 31 May 2023.

Those who are tax resident in Spain (both local Spanish residents and expats resident in Spain) are legally obliged to provide information to the Spanish government (tax authorities) regarding any offshore accounts, offshore investments, and real estate located abroad.

It should be noted that tax form 720 does not imply additional taxation (it is an informative form).

The deadline is the 31st of March each year. In this respect, it is noteworthy that, currently, the Spanish system of rental income tax permits a deduction of 60% of gross rental income before being required to pay tax on the net amount.

Before and since Brexit many UK citizens have bought property in Spain, not with the intention of living in Spain, but simply of being a property owner in Spain and using the property as a holiday home so they can visit Spain regularly to enjoy the lifestyle here.

Whether you are a UK resident buying a property in Spain after Brexit - or before it - you will be liable to pay a non resident income tax. This is a tax that is based on the imputed income from the property in Spain as if it were taxed. Don't let it be said that the Spanish are not imaginative when it comes to taxes!

The tax rate applicable will change from 19% to 24% of the rateable value, owing to the change in status of the property owners from EU to non-EU citizens.

Another major change brought about as a result of Brexit affects the taxes involved in relation to income from rental property in Spain.

Under Article 24.6 TRIRNR (the relevant legislation regulating the taxes payable by any EU citizen who derives an income from rental properties in Spain) ceases to apply to UK nationals.

Accordingly, such UK nationals will no longer be able to deduct rental expenses such as rates, community fees, insurance, amortization, repairs and small miscellaneous expenses etc from the monthly rental income.

Also, just as with those who pay tax under the IRNR imputed income tax in the previous paragraph, the tax rate will increase from 19% to 24%. Something of a double-whammy for those British citizens who are in this situation.

The major difference here as a result of Brexit is that, previously, UK citizens, as EU citizens, were entitled to an exemption from payment of Capital gains tax when the proceeds of the sale of the primary residence were reinvested in another property in Spain for residential purposes.

Accordingly, any such sale and reinvestment will be subject to Capital gains tax, at a rate between 19% - 26% of the gain in value of the Spanish property.

Still interested in the Spanish property market after all of that? Well, if so, in summary, a UK citizen owning or buying property in Spain after Brexit should take into consideration the following taxes:

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• Purchase tax (a percentage of the property price, being VAT if a brand new property and ITP if a resale property - approx 10%);
• Property registry fee: this is a fee payable to the land registry in Spain, to register your ownership rights to the property. The property registry fee will depend on the purchase price of the property.
• IRNR - payable if you own a property in Spain but are not resident here.
• Capital gains tax - relevant when selling Spanish property
• Inheritance tax - payable when transferring the title to a property in Spain into the names of the beneficiaries
• To the above taxes may be added lawyer's fees, notary fees,

The Spanish real estate market continues to be to be robust and is attract to buyers - both EU citizens from Northern Europe as well as EU residents. The additional costs imposed on UK citizens post-Brexit seem to have caused an initial rush to sell, but has not diminished the interest in this property market from the UK.  Find here more detailed information on how to buy Spanish property.