Non-Resident Income Tax post-Brexit

This tax is regulated by Royal Legislative Decree 5/2004, of March 5, which approves the revised text of the Non-Resident Income Tax Law (TRLIRNR).
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If you have British nationality, it will affect you to be no longer a citizen of the European Union. The IRNR’s objective is to tax the income obtained in Spanish territory by non-resident taxpayers, both individuals and entities. The change that British nationals will undergo is that they will become non-EU and this will directly affect their pockets, having to pay more.
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But who is a non-resident?

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To answer this question, we must go to the IRPF (Personal Income Tax) law, the non-resident is one who does not have his habitual residence in Spain and it is known if he resides less than 183 days of the calendar year in the Spanish territory or that the main nucleus of its economic activities are not in Spain.
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Until December 31, 2020, a person who did not habitually reside in our country and was a citizen of a country of the European Union (EU) was taxed differently than a person who is not a European citizen. In fact, it is more advantageous to form of payment of an European citizen.
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But nowadays, a British person, because the United Kingdom is no longer part of the EU, and is taxed through the IRNR (for not usually residing in Spain), his way of declaring the income he obtained in Spain has changed in the following aspects:
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  1. You must pay taxes on the gross income (expenses could not be subtracted (that result in the net income) because that is the way how citizens of an EU country and those of countries that are part of the European Economic Area (EEA) pay the tax).
  1. A 24% is applied to gross income, 5 points higher than those that had been applied to them.
  1. You can not benefit from the exemptions provided by law:
  • Interest and capital gains derived from movable property obtained by residents of another member state of the EU.
  • Profits distributed by subsidiary companies resident in Spain to their parent companies resident in another EU or EEA member state.
  • Dividends and shares in profits obtained by pension funds that are resident in another member state of the EU or the EEA.
  • Dividends and profit shares obtained by collective investment institutions.
  • Royalties between associated companies, paid to a company resident in a member state of the EU.
  • Exemption for reinvestment in habitual residence for EU taxpayers.
  1. You will not be able to apply the regime that allows you to choose to pay through IRPF without losing your status as taxpayers by the IRNR.
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In reference to the exemptions that cannot be applied via IRNR, now it is necessary to go to the Bilateral Agreement between the United Kingdom and Spain to avoid double taxation that has always remained in force.
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Let’s move on to a practical example, in the numbers are where you can really see how this situation affects you. We start from a British person who decided to buy a nice apartment on the coast and has it for rent. Each month he receives € 1,200, the expenses incurred by the property are: the IBI (real estate tax), the garbage tax and the community expenses that reach € 1,500 plus the fiscally deductible amortization expense of 3%, which can be € 4,200.
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The income for renting the apartment is € 14,400 (12 months) and the expenses are € 5,700, but they cannot be deducted, because now the gross income must be used. Thus, we apply 24% to the € 14,400, resulting in a payment of € 3,456.
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But let’s see what happened so far, until 12/31/2020, with the same values used in the example. You could subtract € 5,700 from the € 14,400 and 19% was applied to the result. Before, € 1,653 was paid in the same situation.
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If you do not rent the apartment (you use it for your holidays), then the situation varies, you no longer get income and you only must pay to have it, which will be 2% of the property’s cadastral value and 24% will be applied (before it was a 19%).
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With this simple example we can see that in the same situation, just because the taxpayer is no longer from an EU country, their tax burden increases.
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If you find yourself in this position, be prepared to pay more for income earned in Spain.
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