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Tax boost for British ex-pats

18th December 2006 | back to article listings BACK    print this article PRINT

Brits living or working temporarily in Spain will receive a late Christmas present from the Spanish government this festive season; a cut in their capital gains tax (CGT) by almost a half.

Currently, residents are charged 35 per cent CGT on property sales and personal income but this is set to drop to just 18 per cent.

The Spanish government has been ordered by to make the change by the European Courts, which upheld a complaint that it was unfair for foreigners to be charged 35 per cent while Spanish nationals were entitled to pay 18 per cent.

Now that this will change from January 1st, not only will Brits currently living in Spain save thousands of pounds every year, but property investors who are strapped for cash, will have much more incentive to force their way into what is becoming a mature housing market.

The drop in tax means that investors will have to give up 50 per cent less to the Spanish government than they did before and also landlords will be able to cling onto more of their rental yields.

At present, only over 65-year-olds who have lived in Spain for the last three years are exempt from CGT.

Ian Smith, head of European operations at Halifax, said: "This is fantastic news for Britons living or working temporarily in Spain."

Recent research from the Institute for Public Policy Research published earlier this month said that 760,000 Brits have fled their homeland for the sunnier climes of the Iberian peninsula; the second most popular country behind Australia and the only non-English speaking country in the top eight nations in which to settle overseas.

The change in taxation will benefit those Brits who live temporarily in Spain or work there for short periods and are therefore not registered with the Spanish authorities as residents.

In comparison, CGT is charged at 40 per cent on the sale of a second home– it is not charged on an individual's first home – in Britain, which is over twice as much as the new rate charged in Spain.

The change in tax law is not the first time that foreign Spanish residents have to thank Brussels.

Back in September, the European commission instructed the Spanish authorities to change the notorious Spanish grab law – legislation which meant that local government could deem previously rural land as urban and thus property developers could build close to or even on land purchased by overseas investors.

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