If you are a British non-resident in Spain and have one or more rental properties in Spain, you have reason to be concerned about your tax bill after Brexit. Since January 1, 2021, British citizens, not residents in Spain are considered «non-EU». This will significantly affect the Non-residents tax return as we will explain in detail in this article. 

Spanish tax legislation establishes differences in this tax between community citizens of the European Union (EU) and those of the rest of the world, with a tax of 19% on net income for Europeans and another of 24% on gross income (yes yes gross income, not net) for non EU foreigners. As EU citizens, the British could deduct from the gross income all kinds of expenses related to the property, such as amortization, Property Tax (IBI), repairs, community expenses, interest, etc.

But from now on, these expenses will not be deductible, so they will be taxed on gross income, making a big difference. On the other hand, the tax rate is 5% higher, as we have already mentioned. Here’s a practical example of a rental that generates 1,000 euros per month, that is, 12,000 euros per year and has average expenses of 2,500 euros per year and an amortization of the property of 5,400 euros per year. 

With this data, a European would pay € 779 per year and a British or non-EU citizen, in general, would pay € 2880 per year. 

Many tax experts consider this regulation seriously violates European Union law because it involves severe tax discrimination with non-EU citizens. 

It gets worse, the difference in the tax bill is even greater if we compare it with a British resident in Spain with a rented house who could apply an additional reduction of 60% on the net income, which in the previous example would mean a reduction of more than 460 euros per year. It  still remains to be seen if Brussels initiates an infringement procedure against Spain for this serious discrimination since it would not be the first time that this has happened, but this is a slow process. 

Without a doubt, at least for 2021 and following years the fiscal situation for British will be what we have explained here in regards to their non-resident tax.