The UK is officially exiting the European Union on December 31st, 2020 after a transitional year, with the government and citizens scrambling to enforce deadlines and put things in order amidst the Covid-19 pandemic.
Spain, together with neighbouring Portugal that has worked tirelessly to ensure British holidaymakers and residents will be welcome as per usual, has been a popular option for Britons that seek to escape the rainy winters in the UK. Almost 1 million Brits own property in Spain and the 2019 figures of 365,975 registered residents in Spain, has been rapidly accelerating as applications are being received before the deadline. Unofficial residents that were previously enjoying tax-loops due to freedom of movement between the two countries are now facing late-payment penalty fees on their residential properties and will need to decide where to spend the majority of their time following the UK’s exit from the EU.
It is a confusing and complicated situation for the population of Brits that have moved to Spain in previous years, either as a retirement option, or seeking a better quality of life and work opportunities. Complex living and family arrangements that allowed individuals to travel between the two countries easily will now need to be renegotiated and many are worried about how or if they will be able to return in the future.
The 90-day rule imposed on all non-EU residents wanting to spend time in Spain means long summer holidays might be a thing of the past. The rule allows 90 days in each 180-day segment to be spent in Spain. This means British second homeowners in Spain will need to travel back and forth more than they had previously planned for. This also eliminates the possibility of spending time in any other EU country during that period, like a weekend away in Paris, Lisbon or Amsterdam. The clock resets only after exiting countries in the Eurozone, which means places like Morocco, Cyprus or Turkey might become preferred and affordable holiday destinations in the near future.
December 31st Tax Deadline
All holiday homeowners, that are non-residents, will need to file for and pay property tax before December 31st, regardless of whether they are renting out their property during the summer.
Known as Renta Imputada (Deemed Rental Income), the law has been in effect for a while, however, many have until now assumed or chosen to ignore it thinking they are not liable to Spanish tax as long they are primarily residing outside the country.
Obviously, Brexit has brought these issues to the front, and individuals with no declarations in previous years, risk getting caught and having to pay hefty fines. This cannot be ignored and in case you want to sell or pass your property onto your children or spouse in the future as an inheritance, the Spanish tax authorities can withhold transferring the property until all non-resident tax rates are paid.
Individuals can enlist the help of a Spanish lawyer or navigate the system themselves. The tax is calculated based on the cadastral value of the property (valor catastral) which is a rate determined by the municipal government and tends to be much lower than the actual market value of the property. You can determine your latest cadastral value when looking at your IBI (Impuestos Sobre Bienes Inmuebles). Tax rates are set for 19% for EU citizens but will increase to 24% for non-EU residents after the deadline. For outstanding payments, you will need to pay for up to four years as well as any late payment fees.
A self-assessment form in English can be found here.
Interest in Spanish Property Increasing
While the legal and tax framework is still being negotiated, the global pandemic seems to have provided some much-needed motivation for individuals wishing to make the move overseas and follow their dreams of remote working possibilities.
In Britain, searches for overseas properties are heavily focused on Spain, especially for the younger demographic with ages between 25-34 registering a 20% increase in interest compared to last year for buying property. Affordable house prices in Spain, together with the possibility of better weather, high quality of life and staying in the EU, seem to be driving a lot of first home young buyers to consider the move across the ditch.
The intimate and coastal setting of Marbella in southern Spain is one of the top choices for holidaymakers, expats and Covid-19 migrants and is the most popular option for a second home in the country.
While it remains to be seen how bilateral agreements will impact British homeowners in Spain, it is important to stay up to date and register your property before the tax deadline.