Published 19th December 2019; Updated April 2021
UK based owners of property situated in the EU may pay higher taxes after Brexit
Several EU countries charge higher rates of tax to non-EU residents and after Brexit everyone living in the UK is in that category. For example, the Spanish rate of Income Tax on rentals jumped from 19% to 24% immediately Britain left the EU. On top of that, under Spanish law it will be the gross rent that is taxed with no allowances for expenses. A UK citizen who has lived in his/her Spanish property may also lose exemption from Spanish Capital Gains Tax when selling a former home if the replacement is not purchased within the EU.
The situation in France is no better. Under French law, British residents will pay higher rates of Income Tax on the rental of French property and will pay social taxes on top. Similarly, social taxes will be charged in addition to taxes on the Capital Gain arising on disposal of a French property.
Because the UK does not charge NI or any social taxes on Capital Gains, social taxes charged in France cannot be relieved against UK tax under the Tax Treaty or at all! The French social tax on a disposal is a whopping 17.2% on top of the tax on the gain.
As an example: consider a UK resident who owns property in Spain that is rented out. In our example, the property generates rents of £20,000 p.a. and there are expenses of £10,000 p.a. (but no mortgage). In Spain, the tax will become £4,800 and in the UK £2,000 (for a basic rate taxpayer). The UK/Spain Tax Treaty allows the Spanish tax to be offset against the UK tax, but only up to a maximum of the UK tax (£2,000).
If you are UK resident and have property abroad, you should take advice in the country where your property is situated to see how the changes in the local tax rules will affect you after Brexit.
For advice on UK tax and on the Tax Treaties contact us — experts for over 20 years in the taxation of income and gains from property
The information contained in this article is believed to be correct at the time of publication. The content of this article is intended to be a brief summary of the principal points of the legislation or proposed legislation only, and it is provided for general guidance only. It may not take into account subsequent changes in the law and of necessity it omits much detail. Taxation is a complicated subject and is subject to change. You should only rely on advice prepared specifically for you. Neither the writer nor Landlords Tax Services Ltd can be held liable for any loss arising from any act or omission by you as a result of your understanding of this article. If the subject matter is of interest you should contact us to see if there is a relevant update, and to take professional advice which takes into account your circumstances.