The pound rallied on Monday as GBP investors welcomed the reopening of more of the UK economy.
While millions of UK expats own property in Europe and demand to live and move abroad remains strong, tax changes have come into effect after Brexit.
If you own a property in the EU, your rights of property ownership remain protected by international laws and won’t change.
But other factors such as tax on sales and income gained on property have changed since 1st January 2021.
In some countries the situation will remain the same, and it is liable to change in others as the UK develops bilateral relationships with individual European countries, so you’ll need to check, but here are some changes in tax on European property since Brexit that we do know.
Income taxProbably the biggest tax change for UK nationals will be for those who receive an income from letting their Spanish holiday homes.
The first increase they face is a higher rate on rental income, which has gone up from 19% to 24% since the start of the year.
In addition to the 5% rise, UK nationals as non-EU citizens will be required to pay tax on their gross rental income, whereas before expenses could be deducted.
For example, a gross income of €24,000 for the year with expenses of €14,000 before Brexit would mean a tax bill of €1,900. Now that UK nationals no longer enjoy the same rights as EU citizens, the tax bill will triple to €5,760.
It’s also important to remember for holiday home owners that in Spain tax on rental property must be paid whether it is rented out or not. So, check with an expert to help calculate you’ll have to pay.
Selling your main homeExpats selling their main home in Spain will also face additional costs. Before Brexit UK nationals were exempt from paying capital gains tax if they moved with the EU.
However, now the UK is not in the EU a 19% capital gains tax will apply if you sell your main home in Spain to move back to the UK.
ExemptionsIt’s always best to check up-to-date guidance and expert advice as you may find you’re exempt.
For instance, there are exemptions for those aged over 65. If you have lived in your Spanish property for at least three years, you will be able to claim exemption from capital gains tax on the sale of your property.
Social chargesAt the end of 2020, French authorities announced that UK residents would no longer benefit from EU exemptions. This directly affects a social charges tax, similar to national insurance, which will have a significant impact for those who receive rental income from French property.
These social charges apply to income and gains, and after the UK left the EU, the charge has risen nearly 10% from 7.5% to 17.2%.
Capital gains taxThe increase in payable social charges may initially not seem like too much. However, if you sell a second home you will also be liable for capital gains tax.
With the increased social charges and the 19% capital gains tax on top, you will now have to pay a 36.2% tax rate if you sell a property and gain profit. Previously, UK citizens only paid 26.5% combined tax rate of capital gains and social levies.
ExemptionsIt’s not all gloomy, however, because there are caveats and the situation could change if new agreements are made between the UK and France.
For instance, there are exemptions such as if you have owned the property for more than 30 years or the sale price is below €150,000.
It is important to seek expert advice as you may be eligible for exemptions. Joanna Leach, senior client director for France at Strabens Hall, advises that “France is not famed for its bureaucracy for no reason” and urged buyers or sellers to seek professional help in running up a full review of your financial position.
Main residence reliefIf you’re currently living as a resident or homeowner in France and are planning to sell your property, the good news is that you have until 31st December 2022 to complete the sale to be able to claim the main residence exemption to pay the lower tax rate.
International advisor feeIt’s important to note that there are other costs than just capital gains tax and social charges. Non-EU property owners selling in France are obliged to appoint an international advisor or a ‘fiscal tax representative’ whose fee could be between 1 – 3% of the sale price.
PortugalThe main potential tax change in Portugal is if you are selling your main home and intend to move back to the UK. As non-EU citizens, UK nationals returning to the Britain could be hit with a capital gains tax that is 28%.
But there could be exemptions from capital gains tax. If you’ve paid tax in Portugal and you are moving within the country, you may be exempt from the tax. As always, it is worth checking with an expert to help assess your situation.
GermanyThe news from Germany is much more positive due to a double taxation agreement struck between the UK and Germany in 2010. Post-Brexit, the tax situation won’t change from before on income or selling property in Germany.
However, there are new complexities for those who have business interests and income in Germany which will require in depth expert guidance.
While some of the tax increases seem daunting at the moment, demand for property in the EU remains strong among UK expats and deals between the UK and individual EU countries could still change the cost and tax situation.
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