The majority of UK investors buying property in France or Spain will, at least initially, remain resident in the UK for tax purposes. We consider the main tax consequences of this below.
You will be liable in the UK on any letting income or capital gains you make on your overseas property. You will be able to deduct any foreign tax paid (see below) from the UK liability. However if the overseas taxes are lower than their British equivalent you will have to make up the difference.
Retention of a UK domicile will mean that the value of any overseas property will be part of your estate for IHT purposes.
Any rental income from the property is taxable in France and you will need to complete a French tax return. On sale of the property you may be liable to French CGT at a rate of up to 33%. You will however pay less tax the longer you have owned the property.
There is an annual wealth tax but for those not resident in France it only applies to French assets. The tax starts on total wealth of 720,000 euros (about £500,000) and has a top rate of 1.8%. An individual with a modest French property should not be unduly concerned about this particular tax.
You would also be liable on an annual basis to a ‘taxe d’habitation’ and ‘taxe foncière’ which are similar to our council tax.
French IHT is a progressive tax with a top rate of 40% on an estate of around £1million. Where you are not domiciled in France it is only French assets that are caught.
Non residents are required to file a Spanish tax return if they receive income from Spain or own assets in Spain. There is an annual income tax charge on the notional value of property owned in Spain. On a £500,000 home this would be about £1,875. Where a property is rented out, Spanish tax is charged on the gross rental income at a flat rate of 25%.
A transfer of property located in Spain is subject to CGT (at a rate of 35%) where the vendor is not resident in Spain. The purchaser is required to deduct 5% of the agreed price and pay this over to the Spanish Revenue as a payment on account of the vendor’s overall liability.
A wealth tax is payable annually on Spanish assets at rates starting at 0.2% up to 2.5% on 10 million euros.
There is also a local property tax to pay. The rate varies from area to area but is somewhere between 0.5% and 1% of the value of your property.
Spanish Inheritance and Gift Tax is an acquisition tax and is payable by the recipients and not by the estate. Rates are progressive from 7.65% up to 34% at around 800,000 euros. If the recipients are Spanish resident they are liable on receipt of assets wherever in the world the assets are located. If the recipients are not Spanish residents then the liability only extends to the receipt of assets located in Spain.