Property Buyers Beware?

The recent announcement by the Spanish government that it would impose a 100% transfer tax on non-resident buyers of houses has created angst and confusion in equal measure.

The angst comes from the Spanish real estate sector and foreigners, primarily British, who have long bought holiday homes in the country. Both stand to lose if the policy is adopted.

The confusion comes from someplace else entirely: a lack of understanding of terminology on the part of the press and many would-be migrants.

Many people have interpreted the proposal as applying to all foreign buyers. That’s false on at least two counts.

First, under EU law citizens of any EU country have the full right to live, buy property, work, and so on in any other EU country. The Spanish proposal would not apply, for example, to someone from France who wanted to buy a home in Spain.

Second, the proposal applies to non-residents. An American citizen who has Spanish residency rights would also be able to buy property in Spain without incurring the tax.

Similarly, a non-EU citizen who has been granted permanent residency in an EU country would also qualify as a resident under EU rules, and would also be free to buy Spanish property without extra tax.

Nevertheless, the proposal does pose a quandary to anyone who is thinking of settling in Spain and buying a home.

As part of my Global Citizen service, I regularly consult with people who are planning a life abroad. One of the most common pathways is to buy a property in a European country in anticipation of moving there eventually. The property can be rented out for a profit, and used on vacations. Owning the property also gives potential residents a leg up on the application process, since it demonstrates investment and commitment to the country.

With the proposed Spanish tax changes, that wouldn’t be possible. If you wanted to buy a property in Spain, you’d have to become a resident first.

Other than work visas, there are two ways to do that. You can apply for a non-lucrative visa, which lets people like retirees live in the country on passive income from abroad. Or you could get a digital nomad visa, which allows you to live in Spain whilst working for foreign employers or clients. If you live in Spain for five years on either status, you can apply for permanent residency.

Under the formal definition of the term “resident,” a non-EU citizen living in Spain on either one of these visa categories could buy a home there without incurring the punitive property tax.

This shows why it’s so important to understand the politics behind policy changes in European migration.

Countries like Spain and Portugal have dropped residential property options from their Golden Visa programs because of the impact they’re perceived to have on housing prices for locals. But these countries and others still want foreign residents to live there, spend foreign money in the local economy, and pay local taxes. Applying punitive property taxes to retirees and digital nomads would be self-defeating, since it would deter them from coming to the country at all.

So if Spain is still on your long-term “to do” list, owning property there is still perfectly within your reach. Just make sure you get your timing right.