What does the Brexit Result mean to UK buyers and residents on the Costa del Sol

Legal implications of Brexit for British residents and buyers on the Costa del Sol

For better or for worse, the success of the Leave campaign subsequent to the Brexit referendum has sent shockwaves in the UK and beyond, especially Costa del Sol which is home to one of the largest communities of British expats in Europe.

This article deals primarily with the legal implications affecting British residents (i.e. workers and retirees), as the situation with buyers of holiday homes (i.e. non-resident owners) is not expected to change much in the long term. In any event, the latter are briefly discussed for the sake of competitiveness.

Below is a summary of the key implications:

Should British residents fear mass expulsions or expropriations after Brexit?

It is highly unlikely that the UK withdrawal from the EU would result in mass deportations and expropriations. After all, Spain is a modern Western democracy, a NATO ally and a signatory of numerous international treaties that safeguard the rights of foreign nationals within its territory.

In accordance with Article 1 of the Protocol of the European Convention of Human Rights, “No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.” Therefore, Spain could not simply discriminate against British nationals by expropriating holiday homes en masse or in specific circumstances simply as a result of Brexit.

Moreover, pursuant to the Vienna Convention of 1969 and general principles of law, the termination of a treaty should not affect accrued rights gained by individuals beforehand. This means that British nationals who reside in Spain should maintain their residence rights, provided they moved to Spain prior to the UK´s formal withdrawal from the EU in circa 2 years’ time.

What about British nationals who decide to move to Spain after Brexit?

It should be noted that the above principle of the Vienna Convention does not apply to British nationals who move to Spain after Brexit. However, given that Spain is the country in the EU with the largest community of British expats, their residence rights will definitely take centre stage during any future negotiations between the UK and the EU.

On the one hand, it is foreseeable that the UK will have to concede numerous restrictions on the freedom of movement in order to maintain access to the EU single market (as is the case with Switzerland and Norway). The UK will also have an interest in safeguarding the interests of British citizens abroad. On the other hand, British tourists, residents and homebuyers contribute considerably to the Spanish economy, so it is highly unlikely that Spain will have an interest in enacting restrictions unilaterally (even if politicians may complain about Gibraltar or other matters for the sake of pursuing a political agenda).

Therefore in the light of the mutual interests of the UK and Spain, the most likely scenario is that British nationals who already reside in Spain prior to Brexit will maintain most of their rights. Any newcomers that move to Spain thereafter will most likely benefit from some form of special arrangement (akin to nationals from Norway and Switzerland who benefit from ample residence rights).

In addition to any eventual residency arrangement that may be implemented, it should be possible for British nationals to benefit from the Spanish Golden Visa. Pursuant thereto, high-net-worth investors from a Non-EU Country are able to secure a residency permit if they purchase a property above €500,000.

What will change in terms of citizenship rights?

Although, per the above, it is foreseeable that British nationals will maintain most of their rights to travel, work and reside in Spain, their formal legal status will change because they will no longer be EU citizens.

Subject to the future negotiations between the UK and the EU, it is foreseeable that the following consequences will apply:

  • British nationals will not be able to vote or participate in local and EU elections.
  • British nationals will have fewer protections under EU law.
  • Although British nationals will likely benefit from some form of special arrangement, they will not have an absolute right not to be discriminated in regards to the treatment afforded to Spanish and EU citizens. This means for instance, that British nationals may be subject to different taxes or administrative requirements.

Although the above rights are important, it is more likely that any future restrictions will not severely affect the rights of British nationals desiring to relocate to Spain. In effect, subject to the outcome of future negotiations, it is likely that British nationals will be offered a treatment similar to those of Swiss and Norwegian residents in Spain. In alternative, pursuant to the future settlement to be agreed between the UK and the EU, British nationals may benefit from rights which are tailored to the economic reality.  For example, in order to safeguard the local Spanish economy (in particular the real estate and tourism sectors), it is foreseeable that Spain will agree for British retirees to continue to be entitled to reside in Spain, provided they pay a special social security contribution, contract private insurance and comply with new arrangements to be agreed between the Spanish government and the UK (involving government agencies such as the NHS and HMRC).  Of course, the above possibility is still to be determined and will depend on the willingness to of the UK to adopt reciprocal arrangements that guarantee the right of residence of EU nationals in the UK.

How will the tax treatment change?

Per the above, British nationals will cease to be EU citizens after Brexit, so they will not have an absolute right against non-discrimination in regards to the applicable taxes.

On the one hand, in practical terms this change in circumstances should not be a major issue because it will not affect the majority of taxes applicable in Spain. For example, the rates of IBI Council tax and income tax are the same for EU and non-EU citizens.

On the other hand, some minor differences in taxes will apply. For example, British nationals will likely have to pay a higher rate of non-resident owner´s tax; which in any event should not be substantially higher, circa €100-200 per year for most properties.

Another important point is that many safeguards against non-discrimination applicable to EU citizens will no longer apply. This is relevant for Spanish inheritance tax (IHT), because the applicable rate will apply in full without the benefit of the non-tax allowances (the latter apply to Spanish and other EU nationals exclusively).

What about non-resident owners who purchase holiday homes?

In substance, the situation with non-resident owners and purchasers of holiday homes is not expected to be affected much in the middle to long term. After the UK formally leaves the EU in circa 2 years’ time, on the balance of probabilities and the economic interests at stake, it is highly unlikely that British nationals will require a visa or some form of permit to travel to Spain. Moreover, as the UK is one of the few countries in the world without photo ID cards, the fact that British nationals will require passports to visit the EU does not change anything in practice.

In the extreme scenario that British nationals are required to apply for a visa, it is unlikely that this will affect the real estate sector. For example, at the time of this article, thousands of properties on the Costa del Sol are owned by Russian nationals, even if they require a tourist visa to enter Spain. At the end of the day, due to its location, weather, safety and various other factors, Spain will continue to be top destination for overseas properties in Europe.

The procedure, regulations and taxes applicable to residential purchases by non-EU and EU citizens are largely the same. For example, after the cease to be EU citizens, UK nationals will still be required to obtain an NIE (id number for foreign nationals in Spain) and the applicable taxes for purchases and sales will be identical.

Conclusion

On the balance of probabilities, it is advisable for British nationals intending to retire in Spain to speak with a lawyer and, if possible, to make their move within the next two years prior to the withdrawal of the UK from the EU. Per the above, it is very likely that British citizens already living in Spain before Brexit will maintain most of their accrued rights.

Many British nationals may decide to wait and see how things play out. However, depending on how the Brexit negotiations progress, perhaps it will not be the best decision to postpone a move or purchase until the UK ceases to be an EU Member State. This is because the most plausible scenario is for British residents who moved to Spain before Brexit to benefit from a better and more certain legal treatment than those who did not.

Last but not least, although British nationals who move to Spain after Brexit will not have the same rights, it should be noted that the most likely scenario in the long term will be for them to enjoy similar rights to citizens from Norway or Switzerland, or rights pursuant to some form of special arrangement yet to be agreed between Spain and the UK.

The British expat community on the Costa del Sol has existed for decades, even before Spain became democracy and joined the EU. It is very likely that Spain will remain the top destination for British buyers, especially because any restrictions will not be specific to Spain, as they will face the same situation throughout the EU. However, in view of the on-going changes, it is recommended to contact a lawyer to plan ahead and become aware of the on-going reforms.

Last but not least, this article deals primarily with residency rights. In this regard, it is unlikely that there will be long term impact on the market of second holiday homes purchased by no-resident owners. British nationals are unlikely to require a visa or permit. Therefore, they will continue to own and purchase holiday homes, in the same way as citizens from Russia, Norway and Switzerland.

Author

Lucas Bornico, Partner at BF Solicitors.

BF Solicitors is a law firm of Spanish lawyers (Abogados) and English Solicitors (registered with the Law Society of England & Wales and as EU lawyers with the Spanish Bar Association).
BF Solicitors specialise in advising private clients on the Costa del Sol on legal and tax matters. Our partner-led practice is able to provide a comprehensive service in respect of property, tax, wills & inheritance, wealth management, cross-border commercial & corporate transactions and yacht sales & registrations.

Disclaimer & Contact Details

The above article is intended to provide a general overview and should not be deemed to constitute legal advice. There are numerous on-going legal developments in this field. Legal advice needs to be bespoke in relation to one ́s particular needs and situation. Readers are strongly advised to contact us for a free and confidential 30-minute consultation in English with one of our Partners.
Head Office: Av España, 146, 3A, 29680, Estepona, Malaga, Spain
Secondary Office: Calle Cornisa del Sol s/n, Urb Monte Duquesa blq 31, 29692, Manilva, Malaga, Spain. 
www.bfsolicitors.com / admin@bfsolicitors.com / +34 952 000 031

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