GeneralTAX For Individuals

The Price of Independence: The Effect of Brexit on Your Capital Gains Tax

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With the government at loggerheads over Theresa May’s withdrawal agreement, and whispers in Whitehall growing ever louder over the possibility of a no-deal Brexit, the UK, at least in the short term, is facing an uncertain future. Whether you’re an ardent Remainer or a die-hard Brexiteer, the fact remains that our imminent divorce from the European Union could have huge ramifications for businesses, consumers and overseas trade. And, for UK investors who own property on the continent, a post-Brexit world could prove particularly costly.

Capital Gains Tax for Non-residents in Europe

Whether we like it or not, Brexit is coming, and for the million or so Brits who own real estate in EU countries, there could be serious financial implications. On the continent it’s quite common for governments to look unfavourably on overseas investors, often imposing much higher rates of capital gains tax on non-residents looking to dispose of property in their respective countries. And, one of the biggest fears for investors post Brexit is the potential hike in capital gains tax for UK residents who own property in one of the 27 member states. Take France, for example, where residents are required to pay CGT at a rate of 19% on any gains from the sale of a property. By comparison, foreign nationals have to shell out a whopping 33.3%. And this type of punitive taxation is rife on the continent. In Spain, capital gains tax can be as high as 35% for non-residents, and in Portugal, residents are charged 50% lower CGT than their foreign counterparts. Ex-pats have largely avoided this kind of harsh treatment - one of the perks of being part of the European Union - but, with Brexit looming, things look set to change.

How the European Union Influences Taxation in Europe

EU regulations clearly state that things like VAT, income tax and capital gains tax are to be decided autonomously by governments at a national level, and the official stance of the European Court of Justice has always been not to meddle in the tax affairs of member states. Dig a little deeper, though, and it’s plain that the European Union exerts a massive influence over the domestic tax laws of its members. And this kind of oversight has proved extremely beneficial for UK investors, with the European Court of Justice stepping in on more than one occasion to protect the rights of ex-pats looking to dispose of property on the continent. Here are just some of the landmark rulings the EU has imposed on its members:
  • In 2015, an ECJ ruling forced France to amend its tax legislation, bringing CGT rates for residents and non-residents living in the EU in line at 19%.
  • In 2008, another ruling amended Portugal’s tax legislation, allowing non-residents living in the EU to receive the same 50% reduction on capital gains tax as a Portuguese national.
  • In Spain, in 2014, a similar ruling forced the government to bring capital gains tax for non-resident EU members down to 19%, on a par with Spanish residents.
So, for UK residents with property in Europe, the ECJ’s interventions have resulted in some positive outcomes, allowing ex-pats to enjoy the same lower rates of CGT as residents of countries like France and Spain. But, with Brexit on the horizon, how is the landscape likely to change?

What Happens After Britain Officially Leaves the EU?

Of course, after we leave the EU we can no longer expect the European courts to interject favourably on our behalf, and the fallout from Brexit could leave UK investors subject to the same punitive tax legislation as non-EU members. One solution could be for the UK to remain in the single market, and certainly countries like Norway and Iceland, who are not fully paid-up members of the EU, still benefit from certain tax breaks. But neither May’s withdrawal agreement nor a no-deal Brexit involves membership of the single market. And with a new referendum on Brexit highly unlikely, Brits that own property on the continent may just have to get used to a new, more expensive post-Brexit world.

Post-Brexit Blues

With Brexit just around the corner, it’s a good time to get your affairs in order. If you own property in one of the 27 EU member states, and you’re unsure how Brexit might affect your investment, you need to speak to a professional. Our tax specialists can provide invaluable advice and guidance, helping you successfully negotiate the various pitfalls of a post-Brexit Europe.

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