The Brexit Vote – What it means for holiday homes

European flag

On June 23rd, the UK will vote on whether or not it should remain in the EU. We’re sure you've

already seen and read plenty about the potential pitfalls of both staying in the EU, and of opting out.

However, not much has been written about potential effects to Spanish property should the British

population vote to leave come the Brexit vote so here's a bit more information for you to digest.

First things first, no matter what the result is, there's no need to rush. It's estimated it would take

around two years for the UK to actually leave the EU given the amount of disentanglement it would

take to separate us from Europe.

GBP vs Euro

Let’s start with the economy, how would the GBP shape up against the Euro should we leave the EU?

Well, Goldman Sachs, Citigroup, and HSBC have all warned that the Sterling could fall by 20% against

the Euro. This could have huge implications to those who have a mortgage with a foreign bank. For

example, a repayment of €3,000 which last year would have cost £2,142 would now cost £2,343

should the Brexit vote win.

How can you protect yourself?

Overseas property owners can protect themselves to an extent, though, by using a forward contract.

These allow you to lock in an exchange rate before purchasing currency up to two years in the future

by paying a deposit (often between 5-10%). This allows you to remove the potential volatility and

plan exactly how much you need for your repayments.

So, it would appear that selling is the only option - but that's not true. Given the uncertainty around

the Brexit, properties in Europe are already worth a great deal more in Sterling than previously.

Renting the property out is also an attractive proposition if you were to do so in Euros, given the

increased strength of the European currency.

What if you want to buy?

Well, as we've already mentioned, your spending power is likely to decrease however there should

be no reason why you can't get a mortgage given the UK's long-established relationship with

European banks. Spain especially has a strong lending division with products created for British

buyers and these should continue despite the Brexit vote.

What about tax rates?

Most analysts believe that there will be less disruption in this area than expected. Currently, despite

being part of the economic union with the rest of Europe, the UK is still a separate tax authority. This

means that if you were to buy a villa in Marbella, for example, you'd still be subject to all local and

national taxes so this wouldn't change. However, should we vote to leave the EU, Britons could also

be subjected to punitive taxes meaning that countries such as Spain – or France – could impose

higher tax rates on the income of non-EU residents, increasing the amount of tax paid on the sale of

a house, for example.

Will it affect inheritance?

The last major property change to look out for should the leave vote win come June, is with regards

to inheritance of property. Since August, EU residents have been able to specify which law should

determine who inherits an EU property on the owner's death. Should the UK leave the EU, this

would take it back to where local laws determine succession for land owned in Europe so it would be

even more advisable to make a will valid in the country where the land is located.

We asked our Spanish legal expert, Susana Diez, for her comments on the possible changes.

Inheritance and gift tax in Spain are regulated at both state level and at a local regional level.

The local region’s legislation grants residents a number of tax benefits that, in practice, allow them

to pay much lower taxes than non-residents. These local regions can apply their own allowances and

rates of Tax so they can vary across the country.

The Spanish IHT system is also complex with residents and non-residents being treated differently.

The European Commission believes that the current Spanish IHT provisions infringe EU treaty

freedoms when either the heirs or deceased persons are non-residents in Spain.

The Commission considers that this discriminatory tax treatment constitutes an obstacle to the free

movement of people and capital; fundamental principles of the EU's Single Market. It says this

breaches the Treaty on the Functioning of the European Union (Articles 45 and 63 respectively).

As a result, non-residents in Spain, who are resident in a country which is member of the EU or EEA

like the UK, can currently pay inheritance tax at the level applied in the local region where the

property is situated. Therefore, British people who inherit properties in Spain are currently able to

take advantage of all the tax exemptions available to a Spanish resident.

If the UK does not remain in the EU, the British who inherit property will not be allowed these

exemptions unless the UK sign an International agreement to be a member European Economic Area

(EEA).

As we suggested at the top of this blog, the changes wouldn't come in with immediate effect, so

there is time to put a comprehensive plan together. However, as always, we implore you to plan

ahead to leave you in the strongest position possible.

If you would like the read The Times' full article on the topic then please click here.