Tax hike on foreign home purchases draws Brits' attention

Spanish Prime Minister Pedro Sánchez's announcement of new measures to restrict property purchases by non-resident, non-EU foreigners has drawn significant attention, particularly among British nationals – who rank among the country’s primary property buyers. The proposed measures include a substantial increase in the tax burden, reportedly up to 100% of the property’s value. The news has featured prominently in major British newspapers, including The Financial Times, The Guardian and The Telegraph, becoming one of the most widely read stories.

According to British media, the Spanish government plans to impose a tax increase on property purchases, potentially reaching up to 100% of the property’s value, aligning its policies with those of countries such as Denmark and Canada. Additionally, stricter regulations on fraudulent seasonal rentals are expected to be introduced, alongside the establishment of a dedicated fund to enable regional and municipal governments to enhance inspection efforts.

The Financial Times, reporting on the most-read news of the day, notes that Spain has long been a favoured destination for holiday home buyers and those seeking a permanent move to a sunnier climate. This trend has significantly contributed to the steady increase in property values over the years.

However, it highlights that Spain is among several European countries where "public outrage is growing" over the increasing difficulty of securing affordable housing, either to buy or rent. This frustration stems from soaring property prices coupled with a severe lag in new construction failing to meet rising demand.

In this context, the article connects the Spanish government's proposals to the rising property prices seen in locations ranging from Madrid to Mallorca, driven by an influx of wealthy buyers from the United States, Mexico and Venezuela. These new entrants are joining the traditional British buyers, who "remain key players in the property market along parts of the southern coast, despite no longer being EU citizens following Brexit".

The Guardian, reporting on the third most-read story on Tuesday, noted that the Spanish Prime Minister provided no additional details on how the plan would be implemented or when it would be finalised and submitted to parliament for approval. The publication added that Sánchez characterised the proposed tax of up to 100% as "unprecedented" in Spain's history.

"To put it into perspective, in 2023 alone, non-EU residents purchased approximately 27,000 houses and flats in Spain. These properties were not bought as homes for themselves or their families but as speculative investments to generate profit," the British newspaper reports. "Given the current lack of housing, this is something we clearly cannot permit."

According to The Telegraph, where the announcement ranked as the second most-read news item, the Spanish government's proposal to raise the tax burden to 100% of a property's value stands in stark contrast to the current 10% tax on newly built homes and 6% on existing properties. The report also highlights that this follows the earlier announcement of the termination of the "golden visa" scheme for foreign investors spending a minimum of €500,000.

In Q3 of 2024, non-Spaniards, including EU citizens, purchased 24,700 properties in Spain, accounting for 15% of all property transactions nationwide. Among foreign buyers, Britons constituted the largest group, making up 8.5% of all foreign purchases, followed by Germans, Moroccans, Poles and Italians, according to data from the Spanish College of Property Registrars.

Speaking to The Financial Times, Antonio de la Fuente, Managing Director of Colliers, expressed scepticism about the proposal's potential to alleviate "tensions" in the property market. He highlighted that the 27,000 annual property purchases by non-EU residents are negligible compared to Spain's total housing stock of 26 million homes. "It’s a drop in the ocean," he remarked.

The expert voiced doubts about whether the measure would ever become law, although he acknowledged that the "uncertainty and noise" surrounding the proposal could lead some individual and institutional property investors to reconsider Spain and explore other markets.

In this regard, the BBC, which also featured the story on its homepage, reports that potential British homebuyers in Spain have indicated that the proposal has made them reconsider their plans to purchase property in the country.

A potential buyer identified by the British channel as Michele Hayes, a resident of Manchester seeking a retirement home in Alicante, acknowledged that she was considering "buying quickly before the taxes come into force." However, she expressed concern over the uncertainty surrounding the future, noting that the measure could make it more difficult to re-sell to non-residents, particularly in a tourist area.

Meanwhile, Martin Craven, 62, from London, stated that he would "now consider Cyprus instead," adding, "Who knows what else they could do?"