The Brexit is already a reality. Almost four years after the referendum was held, on 31 of January the UK’s disconnection from the European machine was officially activated.
Although the process is going to be implemented gradually, both companies and individuals should bear in mind the tax consequences of the country’s exit from the European Union. In the case of citizens, the impact affects both the British living in Spain and the Spanish living in the UK. And, as far as taxes are concerned, there are new developments in both VAT and companies, personal income tax and customs and excise duties.
Such is the expense that the Spanish Tax Agency itself has created a special section on the Brexit to explain case by case.
The Spanish financial institution, Bankia, has compiled some curiosities and questions regarding the changes:
1. Watch out for online purchases. With the Brexit, the borders are back, which affects Internet purchases. If you are a seller resident in the United Kingdom, this purchase will no longer be an intra-community acquisition and may be subject to payment of VAT on import, in addition to having to face possible customs duties and management costs.
2. It affects income. Bankia’s blog insists that UK residents who are taxed in Spain on their income from Non-Resident Income Tax (INR) will be taxed at a general rate of 24%, instead of the 19% applied to EU residents. In the event that the non-resident (UK resident) has a property rented in Spain, he/she will be taxed on the total amount received without the possibility of deducting any expenses, unless it is finally determined in the negotiations in the coming months that the UK is part of the E.E.E. (European Economic Area).
3. Goodbye to tax benefits. On the other hand, within the range of Personal Income Tax (IRPF), residents in Spain who make contributions to pension plans set up in the United Kingdom will not be able to apply the tax benefit of such contributions in their income tax return, since the aforementioned plan would not be regulated by Directive 2003/41/EC of the European Parliament and of the Council on the activities and supervision of institutions for occupational retirement provision.
4. As regards Wealth Tax (IP). The Bank stresses that non-residents in Spain (and therefore living in the United Kingdom) who are required to file this tax cannot apply the regulations of the Autonomous Community where the greatest value of their assets is located, and in this case they must apply the state regulations.
5. Changes in lottery and betting prizes. In the event that British residents in Spain are awarded a prize in a lottery, betting or raffle organized by an equivalent entity resident in the United Kingdom to the ONCE or the Red Cross, they will not be subject to a special tax of 20%, and the entire prize will be taxed as a capital gain not derived from the transfer according to the general rules of the tax, applying the general tax scale (between 19% and 45%). Unless it is agreed in the negotiation processes in the next few months that the United Kingdom will remain within the European Economic Area (EEA).
In principle, all these changes would not come into force until 1 January 2021 or even later, if Brussels and London jointly will decide in the coming months. The deadline for negotiating and agreeing on the possible delay is 30 June, and the extension could be as long as two years.