HOW BREXIT HAS AFFECTED BUYING A HOUSE IN SPAIN:
ALL THAT UK INVESTORS NEED TO KNOW
According to The Times, with an average of 350.000€ spending, Menorca is one of the five best Spanish hotspots for Brits to invest for year-round outdoor living. Especially for those seeking to escape glitzy parties or crowded beaches and looking for a get-away-from-it-all holiday home.
Although the average property price went up last year, Spain remains relatively inexpensive compared to other European countries and British citizens still represent the majority of foreign investors in local Real Estate, despite Brexit.
Today the UK is in fact considered a third country and Brits must make sure to consider all the implications of buying a house, applying for residency or spending short periods of time in an already purchased property.
CAN UK CITIZENS STILL BUY PROPERTIES IN SPAIN?
The nationality of a buyer never affects their capacity to purchase a property in Spain. Brits, although non-EU citizens, have the same guarantees and rights as EU citizens. The only exception to this rule is that UK nationals who wish to buy a property or land close to a military base, will need a military permit as per Law 8/1975. The Spanish government is actually always trying their best to encourage non-EU residents to purchase properties, as it benefits enormously from outsiders buying and living in Spain.However, new rules have created some additional hurdles, and impacted second home ownership and property renting.
HAS THE PROCESS OF BUYING A PROPERTY IN SPAIN CHANGED AFTER BREXIT?
Brexit hasn’t changed the process of buying a property nor made it any more expensive.
First of all, all foreigners require a Fiscal Identification Number (NIE), which can be obtained at a police station with a passport (it is usually issued on the same day for EU citizens, but may take a few weeks for others), to deal with bank accounts, monetary transactions and forwarding tax declarations.
All the NIEs obtained by UK citizens before 2021 are still valid.
Then the process of buying a property in Spain usually runs as follows:
Once the buyer finds a property, he or she makes an offer through the seller’s estate agent and starts the negotiation.
When an agreement is found, the buyer and seller sign a preliminary contract (contrato privado de compraventa) and the buyer pays a deposit, typically 10% of the purchase price.
The buyer then arranges any mortgages that may be required, although they should have already discussed their needs with the mortgage provider beforehand. The contract of sale or deed (escritura de compraventa) is then signed in front of a notary, at which point the full sale price, taxes, and other costs become due.
The buyer is then responsible for registering the property and/or notifying the registry office, usually through the notary, that the sale has taken place.
HAVE COSTS OF BUYING A PROPERTY BEEN AFFECTED BY BREXIT?
Nationality or citizenship have no impact on the price of a property.
British citizens like EU citizens pay the same amount for the property.
Also specific taxes and costs associated with the purchasing process are maintained:
- Property Transfer Tax (IVA):
6–10% (existing properties) / 10% (new properties)
- Notary costs, title deed tax, and land registration fee: 1–2.5%
- Legal fees: 1–2% (including IVA)
- Some small miscellaneous expenses
In Spain, the seller usually pays the estate agent fees, that are typically around 3% of the final sale price.
The only factor that may affect the price, and does indeed depend on Brexit, is the fluctuation of the Pound and Euro.
This volatility can modify a UK citizen’s purchasing power and make the existing price of the property higher or lower based on the currency’s movements.
CAN UK CITIZENS STILL VISIT REGULARLY OR LIVE IN SPAIN?
Yes, but there are new rules and limitations.
One of the big changes of Brexit are immigration-related issues and the fact that UK nationals no longer benefit from freedom of movement and face the same rules that apply to non-EU/EEA (‘third country’) citizens.
While this doesn’t affect buying or owning properties, it does affects and limits the length of time a UK national can spend in Spain.
Those who are seeking to stay for short periods of time don’t even notice a difference, except for the need to be in possession of a, at least, 3-months-valid passport, but for those looking to stay longer than 90 days things have changed significantly.
Unless registered as residents in Spain before the end of 2020, UK nationals can visit Spain, and the whole Schengen area, for just 3 months (in a 180 day period) before applying for a long-stay visa or a regular residence permit.
Residency is something worth considering especially when a Non-EU citizen needs to work to make a living to pay for food, heating and personal money, because Spain does not pay any financial benefits or provide housing to any foreigners, whether they are E.U. members or not.
On the other side, for those not planning to work in Spain, the alternative is a non-lucrative residency visa, but it requires financial self-sufficiency and a private health insurance.
However, because of the increase in demand for this type of visa, the process of applying for the non-lucrative visa can take two to three months, and it typically costs £2,000. Remote workers cannot apply for this visa, but a new digital nomad visa proposal is being reviewed now by Spanish parliament.
Nevertheless, if a Non-EU resident purchases a property, he or she can easily obtain residence under the Golden Visa program, a special type of residence created especially for all the citizens from outside the European Union who want to move and make significant investments in Spain.
The Golden Visa, allows non-EU citizens to live in the country for 2 years (with the possibility of renewing), and the only requirement is to visit Spain once a year (as opposed to the other types of resident programs that require a minimum of period of a stay of 6 months in the country).
In order to apply for this permit, one must have invested at least 500.000€ in real estate, have police file background checks and private healthcare insurance.
UK nationals and residents in Spain prior to the 31st of December 2020, still have a right to residency and freedom of movement as well as health insurance.
DO UK CITIZENS STILL HAVE THE RIGHT TO RENT THEIR PROPERTIES IN SPAIN?
Yes of course.
Any owner can use their property as they want after purchasing it, and Brexit has not affected that.
HAVE TAXES BEEN AFFECTED BY BREXIT?
Yes and No.
Brexit has not affected taxes involved in a transfer of property. Therefore taxes for UK citizens who simply use their properties for their holiday stays have not changed.
But foreigners, both EU citizens and non-EU citizens, always need to pay attention to tax rates, especially those applied to rented properties.
Before Brexit, as European Union citizens, Brits had to pay 19% tax on the income the rental generated, now that percentage has increased. Today, as non-EU citizens, they have to pay 24% non-resident income tax (IRNR) on the rental income, and can no longer offset expenses incurred in the management of the property such as community fees or IBI (Impuesto sobre Bienes Inmuebles, the equivalent to the UK council tax).
On the other hand, nothing has changed regarding the form and the rate of Spanish Inheritance Tax, as non-EU residents should not be discriminated.
HAS THE SELLING OF A PROPERTY BEEN AFFECTED BY BREXIT?
Not the process, but the taxes implied.
Like with buying, the laws and protocols have not changed with Brexit.
What has changed is that the rate of Capital Gains Tax (CGT) on the sale of Spanish real estate has increased from 19% to 24% on UK tax residents, now the UK is no longer part of the EU. However, CGT on Spanish tax residents remains the same and is charged in bands: 19% on the first 6,000€ of gains, 21% on the next 44,000€, 23% on the next 150,000€ and 26% on gains over and above 200,000€ apply (though certain main home reliefs are available, which might reduce or eliminate the taxable gain). The downpayment of Capital Gains Tax corresponding to the property seller (unless the buyer becomes a substitute) that must be paid to the Tax Agency in Spain continues to be at 3% of the purchase price. It is true that the Brexit referendum was a shock, and many Britons shied away from purchasing properties in Spain (and wider Europe) and started selling because of the uncertainties of the negotiation process and the transition period.
But now we know what Brexit means for Britons living in Spain: rules may be different, but they are fixed, and this new certainty surrounding the process is making things easier both for sellers and buyers.