British and own property in the EU? You could soon be paying a lot more tax!

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 will 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 almost twenty years in the taxation of income and gains from property.