Britons who dream of one day moving to Spain have received some bombshell news. On the surface, it appears to leave any hope of moving in tatters for all but the wealthiest.
Spanish prime minister Pedro Sanchez announced on Monday a drastic new policy that could leave Britons who buy property in Spain facing a tax bill worth hundreds of thousands of pounds.
And this is just the latest blow to current and aspiring British expats. A deadline marking the end of Spain’s so-called golden visa scheme was also announced this week – for as early as April this year.
But experts say these two announcements do not have to mean the end of the Spanish property dream for Britons.
There are ways to keep that hope alive for those who know how. And although the latest announcements sound ominous, they may not prove as damaging as they first seem.
Money Mail investigates…
Spanish charm: Calella de Palafrugell on the Costa Brava. Britons who buy property in Spain could soon face a tax bill worth hundreds of thousands of pounds
What did the spanish PM say?
Mr Sanchez said his socialist government would raise the tax that non-EU foreigners – including Britons – pay when purchasing a property in Spain to 100 per cent of its value.
All homebuyers in Spain currently pay taxes worth 10 to 12 per cent of a property’s value.
‘The tax rate that non-Europeans who do not reside in our country must pay when buying a home in Spain will be increased to 100 per cent, prioritising that the available homes are for residents,’ he said.
Currently, buyers of new build properties pay 10 per cent VAT (called IVA in Spain) to the central government, plus stamp duty called AJD to the region in which they are buying. AJD rates are set by the individual jurisdictions, but are typically around 1 per cent.
Buyers of older properties do not pay the above taxes, but instead pay a transfer tax called ITP at between 6 per cent and 11 per cent to their autonomous community.
So, for example, someone buying a new build in Madrid for ¤350,000 (£295,000) would pay ¤35,000 in VAT by transferring it to the seller on completion and 1.5 per cent AJD (¤5,250) to the Community of Madrid within 30 days. In theory, under the new rules they would pay ¤350,000 in tax overall.
Jonathan Eshkeri, director of E&G Solicitors, which operates in England, Wales and Spain, says it is not clear how the government would bring the total tax up to 100 per cent.
‘Would he try to force the jurisdictions, which are 17 autonomous governments, to claim extra tax? We think what he’s proposing is unworkable and nonsensical.’
What it means for British expats
The announcements are clearly unsettling for the 303,000 Britons who already live in Spain – and those considering making the move to warmer climes and a more comfortable way of life.
Spain is the country Britons would most like to move to this year, according to a recent survey by transfer specialist Currencies Direct.
It is still very unclear how the new policies might be implemented. No details were given by the prime minister during his announcement.
No timeline was given either – only that it would be finalised ‘after careful study’. Any changes would have to make their way through parliament.
Sean Woolley, who lives in Marbella and sells high-end properties through his firm Cloud Nine Spain, says: ‘Nobody knows how this will work, and that’s the reason it’s so unsettling.
‘Does it mean buyers would pay tax once when they buy their property – or would they pay a tax every year? It sounds like scaremongering.’
However, the rules would apply to ‘non residents’, and Kelman Chambers, a cross-border financial adviser and partner at wealth manager Blevins Franks, says expats are unlikely to be affected.
‘Expats on the most popular visa type – the Non-Lucrative Visa (NLV) – receive temporary residency while they apply for permanent residency, so wouldn’t be affected. Those more likely to be impacted are those looking to buy a holiday home.’
He is sceptical that such a law would ever pass. ‘The EU allows member states to introduce housing policies to address economic and social concerns, provided they are proportionate, non-discriminatory, and serve the public interest,’ he says.
‘Since the tax targets non-EU buyers and exempts EU citizens, it appears to align with these principles, though it could still face legal scrutiny if deemed excessive.’
‘We won’t be able to afford to live there’
Tax fears: Paul Digweed and his wife Jennifer bought a buy-to-let property in Murcia in June last year
Paul Digweed, 52, and wife Jennifer, 50, bought a buy-to-let property in Murcia in June last year to fund their future retirement in Spain.
But their dream of buying another property in the country for their silver years could be in tatters if the new tax proposals come into force.
Paul, from Reading, says: ‘It’s quite worrying for our plans – hopefully the changes don’t come into play.
‘We probably won’t be able to afford to live in Spain if they do. They really need people like ourselves to invest.’
Project manager Paul was planning on buying a home for himself and Jennifer, and keeping the buy-to-let property as an investment.
Their rental is a two-bedroom, two-bathroom apartment on Mar Menor Golf Resort, which is ideal for those on golfing holidays.
The couple are renting it out at €500 to €950 per week.
‘I’m a golfer and knew that we’d see strong demand outside of the summer, when we will rent to families,’ Paul says.
‘I’m happy to pay Spanish taxes’
Food for thought: Quentin Murray is selling up his property in Aberdeen and moving to the Costa Blanca
Quentin Murray, 44, is selling up his property in Aberdeen and moving to the Costa Blanca with his family.
He’s on a Non-Lucrative Visa, which is the most popular type of visa with Britons.
This does not permit working but allows passive income, such as taking dividends, which he does from the online company he owns. He sighs at the mention of Spain’s new tax.
‘Spain is not perfect but it’s better than here,’ he says. ‘I pay 14 per cent tax on £100,000 of income in Spain – it’s worth paying that to have police who catch criminals, to have good sanitation and clean water.
‘I pay €150 a month for all utilities and council tax, a far cry from UK costs – and that’s for a five-bedroom villa [bought for £338,000 in 2022].
Everything is better in Spain, and even if I lost my income tomorrow, I’d rather work in a bar and earn €1,000 a month than come back here.’
‘The tax won’t work and will cause unemployment’
Samuel Bartlett bought a second home with his wife on Majorca some 17 years ago and made a permanent move from London seven years ago.
The 61-year-old photographer is concerned that the tax changes will damage tourism on the island, which is a hotspot for holiday homes.
‘It’s a place that is pretty much dependent on tourism so if you take that away then residents will be out of work.’
The father-of-three thinks just the threat of the tax hike will put Britons off moving there, but doesn’t think the proposals will become law as it’s ‘never going to work’.
He instead wants to see the Spanish prime minister Pedro Sanchez invest in building more affordable homes to fix the housing crisis.
‘There will be a surge in buying this spring’
Prediction: Victoria Lewis owns homes in Spain
Victoria Lewis, 43, has been living in Gran Canaria for seven years and bought a second property on the island last year.
The Victoria & Associates estate agency owner says of the new tax proposals:
‘It actually creates an incentive for Brits to snap up a property now before any changes next year. I predict a surge in interest in buying property this spring. Buyers from the EU are not being targeted, so it will not solve the housing problem for locals – it will just mean fewer British residents.
‘We have a big expat community – they come on holiday here and do not want to leave, with many deciding to stay and buy a property.
‘I can’t see them being put off in the short-term, but people would simply refuse to pay if there is a huge tax rise.
‘The rules on buying and selling in Spain are already complicated and this tax bombshell is all about politics – it’s not about helping the Spanish economy.’
How should we react?
Sean Woolley suggests that buyers should ‘get a move on’ because, if the tax rule is implemented, it would be hard for the government to apply it retrospectively to expats who have already bought property.
Non-EU residents bought 27,000 properties in Spain in 2023, according to the prime minister’s speech.
Interest in buying property in Spain among the British rose by 2 per cent last year, according to buying advisers The Property Finders. The largest group of non-Spanish buyers are Britons, who make up 8.5 per cent of those deals.
Alternatively, buyers may wish to wait and see as further details are revealed.
‘So far, none of the buyers I am currently dealing with have changed their attitudes based on the announcement,’ Woolley adds. ‘One potential buyer has decided to wait, but none who already had their eye on properties.’
Is it as bad as all that?
Not necessarily. First, any tax rule changes will not happen overnight.
Last April, Mr Sanchez announced he was ending the golden visa scheme, which offers fast-tracked residency to foreign investors who buy property in Spain worth at least ¤500,000 (£421,000).
The change in policy was made in a similar fashion – in other words, out of the blue and taking people by surprise.
But the time between the shock announcement and its implementation will have been a year when the golden visa scheme is cancelled in April this year.
Second, the prime minister may not have the political power to push through the changes he is targeting.
Hans Lenz, president of the Balearic Association of National and International Real Estate Association, says: ‘Mr Sanchez does not hold a majority in parliament and therefore many of his proposals are either never approved or can take up to a year to come into practice, as is the case with the golden visa.’
Third, clues in the prime minister’s speech suggest that his political target is property speculators, rather than expats who buy property in Spain for themselves and to be part of Spanish life and contribute to its economy.
He highlighted that non-residents from outside of the EU bought 27,000 houses and flats in Spain, ‘not to live in them, but mainly to speculate’.He said this was ‘something that, in the context of the shortages we are experiencing, we cannot afford’.
This focus on speculators suggests there is a chance that even if the new rules are implemented those who buy for their own use may not bear the brunt.
‘He is trying to stamp down on speculators and wealthy buyers who can afford to leave their properties empty for ten months of the year and contribute little to the economy,’ says Woolley. ‘People who want to make Spain their home and contribute Spanish taxes are not who he is targeting.’
Pledge: Spanish Prime Minister Pedro Sánchez said his government would raise the tax that foreigners pay when purchasing a property in Spain to 100% of its value
Can you still buy property in Spain?
Absolutely – there is nothing to stop Britons from buying homes. You just need to go into it with your eyes wide open and be ready for any changes to taxes and other rules for expats. Those looking to Spanish property as an investment may have to be especially wary.
Any rule changes will apply to non-EU residents. If you are lucky enough to be eligible for a passport of an EU country through birth or marriage, you may be able to avoid the clampdown altogether.
What about the golden visa?
Golden visas were much loved by those who had them, but in reality few Britons opted to hold them.
Just 177 Britons took one out in 2023, according to figures from the Ministry of Foreign Affairs, European Union and Co-operation of Spain and analysed by Transparency International.
Although commonly known as the golden visa, its official name is the ‘investment visa’. It permits unlimited residency to an investor (as well as their spouse and dependent children) who spends at least €500,000 on Spanish property. The purchase cannot be made with a mortgage.
The visa can also be obtained with an initial investment of at least ¤2 million (£1.68 million) in bonds issued by the Spanish government or ¤1 million (£844,000) in Spanish companies or funds, or deposited in a Spanish bank account.
The golden visa allows holders to remain tax resident elsewhere and therefore also exempt from Spain’s wealth taxes, which are levied on Spanish tax residents’ worldwide assets. However, in reality, few people need golden visas to thrive in Spain.
Protestors squirt water guns at touristsin Barcelona. Anger is mounting in Spain as growing numbers of residents struggle to find affordable homes
What are the alternatives?
The Non-Lucrative Visa is popular among retirees, as it permits holders to reside in Spain without limit so long as they can show they have enough to live on without needing to earn money.
This is a minimum of €28,800 (£24,300) income a year for a single person or €36,000 (£30,383) for a married couple. The main applicant must have €28,800.
The visa lasts for a year, after which it can be renewed twice for two years at a time. After five years, holders can apply for permanent residency.
Holders are considered tax resident in Spain, so Britons on this visa pay tax on their income and wealth to the Spanish government, rather than HMRC. There are also work visas for those who are looking to start a business in Spain or work for a Spanish company.
A growing number of Britons are also moving to Spain on a ‘digital nomad’ visa, introduced by the Spanish government in 2023 for people who are working remotely for non-Spanish companies.
They are popular among those who could work from anywhere and so choose to be based in Spain, where they have better lifestyle and lower living costs than they would in their home country.
These visas require a minimum income of ¤31,752 (£26,803) a year for a single person.
Why is Spain doing this now?
Anger is mounting as growing numbers of Spaniards struggle to find affordable homes.
Property prices are soaring and construction is failing to keep up with demand. A move to curb and discourage sales to non-EU residents shows voters that the government is taking action.
However, Stephen Abletshauser, private client partner at Spencer West LLP, is among those who suggest it may backfire.
‘This populist move by the Spanish government may well prove to be a long-term own goal,’ he says. ‘The likes of Turkey, Italy, Malta, Cyprus and even France will welcome this decision in a fiercely competitive market for wealthy non-residents retiring in the sunshine.’
- How will the rules affect your dreams of moving to Spain? Email rachel.rickard@dailymail.co.uk
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