This tax is regulated by the Royal Legislative Decree 5/2004, from the 5th of March, approving the consolidated text of the law on income tax for non-residents. Payable on income received in Spain by non-resident taxpayers, this applies to individuals and entities, and if you are a non-resident in Spain and the owner of an urban property located in this country, you will be subject to non-resident income tax together with a local tax, known as property tax.
Consequences of Brexit on the IRNR, in the case of income obtained without the mediation of a permanent establishment:
With respect to the income received by U.K. residents as from the 1st of January 2021, the changes below must be taken into account, now that the United Kingdom will no longer be a part of the European Union.
The following exemptions will cease to apply:
- Interest and capital gains from property obtained by residents in another European Union (EU) member state with certain exceptions. As an example: Interest obtained by non-residents in Spain will no longer be exempt. A British national, non-resident in Spain who has an investment in a Spanish bank and receives interest, were previously exempt, but from the 1st of January 2021 will have a 19% withholding tax on the profit.
- The exemption for reinvestment in the main residence for taxpayers from the EU, Iceland and Norway: capital gains obtained from the transfer of your main residence in Spain may be exempted from taxation, provided that the total amount obtained from the transfer is reinvested in the purchase of a new main residence. As an example: A British couple resident in Spain, with the main residence, will lose the exemption on the reinvestment of capital gains if they change their residence to the United Kingdom and want to invest the profit in a property; prior to BREXIT the reinvestment of capital gains in the main residence was exempt.
- General maintenance costs, property and waste tax, a community of owners, etc… cannot be deducted by the owner of the property when renting out the property. It may be of interest to look into setting up a Spanish Limited Company as the new owner of the property to improve the tax situation.
- With regard to income taxed at the general rate, the general tax rate of 19% for EU residents will no longer apply. The new rate will be 24%. These include rentals, work, etc.
- There is a double taxation convention with the United Kingdom, which is not affected by Brexit.
However, it is worth highlighting that there is a bilateral convention between the United Kingdom and Spain to avoid double taxation, which will continue to be applicable. For this reason, certain types of income which are no longer exempt under the application of the internal legislation, as we have explained, will still be exempt by invoking the right of application of this convention.