Brexit tax implications for British citizens and companies

As well as having consequences for British citizens, Brexit will also affect companies and tax

Brexit tax implications for British citizens and companies
Brexit tax implications for British citizens and companies
25 February 2020, Redaction

Brexit is already a reality. Almost four years after the referendum was held, on 31st January 2020, the UK's disconnection from the EU has finally become official.

Brexit news is constantly changing and although the process is going to be implemented gradually and we're currently in a transition period, 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 British expats living in Spain and Spaniards living in the UK. And, as far as taxes are concerned, there are new developments regarding VAT and company taxes, personal income tax and customs and excise duties.

Such is the scope of this issue, that Agencia Tributaria, the Tax Agency in Spain has created a special section on Brexit on their website to explain case by case. The Spanish bank, Bankia, has also compiled some curiosities and questions regarding the changes in their blog: 

1. Watch out for online shopping. With the Brexit, borders are back and this affects Internet purchases. If you are a seller residing in the United Kingdom, purchases 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 handling 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 (IRNR) 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 EEA (European Economic Area).

3. Say goodbye to tax benefits. On the other hand, within the scope 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. What happens to Wealth Tax (IP)? The entity 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 the lottery, betting or a raffle organised by the equivalent of ONCE or the Red Cross, no special tax of 20% will be applied to them, 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).

It is important to remember that all of these changes would not come into effect until 1st January 2021 or even later, depending on what Brussels and London jointly decide in the coming months. The deadline for negotiating and agreeing on the possible delay is 30th June, and the extension could be as long as two years. Keep up to date with other ways in which Brexit could affect British citizens living in Spain on idealista.

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