Brexit changes for UK residents with EU properties

Following our previous blog on the personal tax impact of Brexit, it seems those who own property in France or Spain may be particularly affected by Brexit.

UK Residents selling French Property

Non EEA residents must appoint a French tax agent at the point of sale to check that the correct amount of tax has been calculated. This inevitably comes with an associated fee, typically charging up to 1% of any sale price. Prior to 31 January 2021, UK residents didn’t have to appoint such an agent, but now they have no choice.

In addition, UK residents used to benefit from the EU exemption from a social levies tax when they sold property in France. However, again from 31 January 2021, UK residents are subject to pay French social security contributions at the full rate of 17.2% (previously 7.5%).

Combining the current standard French capital gains tax rate of 19%, progressive surcharges for gains over EUR 50,000 and the increased social levies tax could result in a top rate of 42.2% on any gain made on sale. There is a form of taper relief which largely allows a reduction in chargeable gain based on the length of time the property has been held – the longer you hold the property, the less tax you will pay, but the combined French tax rates far exceed what you would pay in the UK.

As a UK resident, worldwide chargeable gains must be reported to HMRC and UK tax paid, but UK tax can be reduced by any French tax paid on the same gain. Based on current tax rates, which may of course change in the UK budget, it seems that far more tax will be payable in France than in the UK, with no recourse for the balance to be refunded.

UK Residents letting or selling Spanish Property

Prior to Brexit, UK residents who were landlords of Spanish property were taxed on their net rental profits at 19%. In other words, the tax charge was only applied after expenses had been deducted from rents. These same landlords will now be charged 24% on gross rental income, with no relief for expenses.

The same increase applies to vacant Spanish properties, so whereas 19% tax was previously charged on the deemed income (rateable value) of the property, this charge has increased to 24%.

Spanish Capital Gains Tax charged on the profit made on any sale of an investment property or second home will remain at 19%.

One important point relevant to anyone thinking about returning to the UK, applies to those who currently have their main home in Spain. If aged under 65, CGT exemption on any profit on sale would only apply if they invest in another home within the EU. Brexit now means selling your home in Spain and buying a replacement in the UK, could lead to a Spanish CGT charge.

90 Day EU Visit Restriction

Britons with holiday homes overseas in most parts of the EU, which will include regular summer hotspots such as France, Spain, Portugal or Italy, will also now be much more limited in terms of how long they can spend in their holiday homes if they don’t also have an EU passport. UK residents will only be able to spend 90 days out of every 180 days in the EU’s ‘Schengen’ zone from 1 January. Those who overstay this period may face penalties, which could include future entry bans. There is no doubt this could significantly impact the tourist industry in these areas, not to mention many British travel plans, particularly for those who choose a lifestyle which includes staying between homes in the UK and Europe. It is perhaps likely that EU countries who rely heavily on British Tourism may seek to change this.

Managing UK and Overseas Tax Liabilities and Planning to ensure tax pitfalls are avoided can be difficult and certainly complex. The Private Client International Tax team are here to help you navigate through this global tax landscape.

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