It's no secret that Spain has long been a favoured port of call for Britons wishing to invest their money in a country that promises sunshine, sea and Sangria. Throw in some incredible culture, bustling cities and beautiful coastline, and you have perhaps the ideal recipe for British people looking for their perfect holiday home abroad.

 

However, the fairytale may be set for an abrupt end as the Spanish government announce their intention to impose a 100% tax on real estate purchased by residents of non-EU countries. This measure was first announced earlier this month, the intention being to reduce demand and subsequently, moderate the soaring prices of property in the country – which is causing a wide range of issues on a domestic scale.

 

Given that the UK is no longer part of the European Union, if this proposal goes ahead unchanged from the conditions announced earlier this month, British nationals seeking their haven in the sun would have to contend with a 100% increase in the price of property on the market (essentially doubling the price).

 

This proposal, if approved and implemented as-is, presents a major shift for UK nationals hoping to purchase property in Spain.

 

100% Property Tax: what and why?

A 100% property tax would mean that non-EU resident buyers are required to pay a tax (for the privilege of buying the property in Spain) equal to the purchase price – doubling the outlay for that select demographic. For example, an individual deciding to buy a property in Spain worth 200,000 Euros would also be required to pay a tax of another 200,000 Euros to match the purchase price of the property.

 

Seems quite the move from the Spanish government, so why has this been proposed?

 

Spain has a dramatic housing problem, whereby the sustained foreign demand for property in their beautiful country over the course of what is now decades has driven the market pricing through the roof over time. This creates a divide in affordability between rich(er) foreign buyers looking to invest their cash in Spanish property, and local people who cannot compete on a financial level for housing in their own country – this is obviously a major issue and needs to be addressed.

 

In 2023 alone, 27,000 homes were purchased in Spain by non-EU residents – a sizable proportion of which were second homes in the country and/or investment properties. This number doesn't take into consideration the homes that were also purchased by foreign nationals from within the EU.

 

In particular, Spanish natives that live and work in popular tourist hotspots such as near the coast and in major cities are consequently facing an insurmountable gap in affordability, preventing them from entering the housing market at all. Plus, workers in these areas are facing ever increasing rent costs too, as their landlords attempt to keep up with the increase in house prices from endless foreign demand.

 

When does this come into effect?

As we've alluded to throughout this article, it's important to note that this is not yet confirmed as law. It still requires parliamentary approval and there is no shortage of debate about the potential impact of such a law on Spain as a European tourist hotspot.

 

In short – those in support of the proposed 100% property tax law are bravely endorsing its implementation as a critical next step in the preservation of the livelihoods of the Spanish people and families, whilst the opposition are apprehensive of the potential impacts it could have on Spain's reputation as an attractive destination for foreign investment. Horses for courses indeed!

 

 

Spain 100% Property Tax

 

 

100% property tax: The end for uK Buyers?

 

Not just yet. Whilst Spain's proposed 100% property tax on non-EU buyers can be referred to as one of the more notable reforms to housing regulations in Europe we've seen, it's still just that – a proposal.

 

For the time being at least, it's a noble and brave attempt by the Spanish government to prioritise their people by stemming the flow of demand for property in their country. If approved and demand drops, prices will fall too and over time, this corrects the issue of the current affordability gap.

 

Realistically, this could signal the end of an era in which British nationals (amongst others) viewed Spain as the primary location for a new place in the sun. Depending on pending parliamentary discussion, it could also not mean that at all. One thing is for sure though – whatever the outcome, there is definitely change in the wind for non-EU buyers with an interest in property in Spain.

 

 

 

 

If you would like help with taxation or compliance for your UK property business, or to discuss any matter within this Knowledge Hub Guide, please get in touch with us.

 

For all general accounting enquiries, please give us a call or fill out our enquiry form.