Home buyers and owners in France and Spain – watch out

One of the biggest changes for Britons buying or owning homes in an EU country since the start of 2021 has been the length of time you can stay.

And there is another…… taxes

As non-EU citizens, Britons no longer benefit from EU exemptions. What does this mean in practice?

Let’s take a homeowner in France

A french Gite home

Vendors in France are usually subject to both Capital Gains Tax (CGT) and social charges which fund the services in France – of which there is no direct equivalent in the UK.

Social Charges increase from 7.5% to 17.2% if the seller is not an EU or EEA citizen. More than double the rate for non-EU citizens.

Combined with 19% CGT, it means that a property vendor pays a total of 36.2% in tax, with CGT and social charges combined, on the profit they make from their home at the point of sale.

There are also increased property expenses

As an EU citizen there is no need for a “fiscal tax representative”, which charges around 1% of the sale price to do a capital gains tax declaration. But as a non-EU citizen a Briton is obliged to make a capital gains declaration supported by a tax representative accredited by the French Tax Authority.

There is a glimmer of hope… in bureaucracy and exemptions

With France it is always a good idea to get financial and tax advice, as there are exemptions available to sellers and various ways of buying a property in a ‘Special Purpose Vehicle’ (SPV) of which there are many forms in France, all with upsides and downsides..

Apart from setting up in an SPV, there can be exemptions when buying personally. For example if you’ve held the property for more than 30 years – you are not liable to social charges or CGT in France on the gain.

Or you can plan for this in a similar way to the UK, by moving into the home in France and making France the primary residence, thus in theory enabling a house sale without attracting CGT using the main residence exemption.

As in the UK there are rules around this, so tailored advice is needed.

How about homeowners in Spain?

Another popular country for Britons buying a holiday or retirement home, but where the tax regime is different for non-EU citizens.

Income tax is levied at 19% for EU citizens but 24% for residents of a ‘3rd country’

And whilst it is still ok to get mortgages, banks might not lend as much money against the value of the property. Banks in Spain are tightening loan-to-values and post Brexit mortgage lending is typically at 60% LTV, lower than the 70% LTV for EU citizens.

This means having more cash available as a home buyer in Spain, given a 40% deposit is likely to be needed and along with buying expenses at 12-13% as a home buyer you may therefore need 52-53% of the value of the property in cash.

Increased cross-border visibility of tax affairs 

Whilst Brexit has fragmented our relationships with Continental countries somewhat, we live in a world of increased traceability. It is worth taking note that there is a Directive (2018/822) called DAC6, an EU mandatory disclosure regime that imposes mandatory cross border reporting on tax matters for tax residents in one or more EU State, meaning there is greater cross border reporting of tax affairs.

Double Taxation Treaties are international and exist between the UK and most Countries around the world, meaning you don’t pay the same taxes twice.

Whilst these fiscal changes are more enduring, let’s hope stock blips of British products on the Continental supermarket shelves are only temporary and the logistics and transportation challenges get resolved soon.

If you would like help finding the right property for you then please get in contact.

My business focuses on helping time-strapped expats and busy business people who don’t have the local presence, or capacity, to acquire the ‘right’ properties for them. Property Venture® is an award-winning, Boutique property consultancy that finds the right investment properties for clients.

Disclaimer: Property Venture® is not a tax adviser but has outlined information in layman’s terms to enable top line comparisons, nor is it offering advice.

With regard to in-country legislation, letting licences and taxation laws, then you must take appropriate legal or taxation advice during your purchase process, at which time your solicitor or advisor will discuss with you up-to-date legislation and costs

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