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16^th of January 2025
By Raymundo Larrain

On Monday 13th of January Spain’s president floated the crazy idea of taxing up to 100% home purchases by non-EU nationals (i.e. British).

I’ll preface my post quoting Cicero:

"The closer the collapse of the Empire, the crazier its laws are." — Marcus Tullius Cicero (Roman statesman and lawyer).

The Spanish government, and in particular its acting president, is beleaguered by major corruption scandals (understatement) which extend to his inner circle. This has created a great political weakness which has resulted in almost no laws being passed in Spain over the last year.

The president has been mulling the idea to pull forward polling day, likely by early summer, so as to shore up his greatly undermined political support. Translation for laymen, this means the government has changed gears and is in electoral mode. Meaning any major political announcement, such as Monday's 100% tax, needs to be construed under the light of political spiel. With Spanish politics, you need to learn to read between the lines. This was an announcement aimed exclusively for the consumption of his domestic political audience and no heed should be paid to it by foreigners. It is a political bravado.

Now that we have gotten out of the way why he made such an irresponsible declaration on Monday, let us examine why the impact of this policy would be negligible and - fundamentally - why it cannot be done for technical reasons.

1. Overall negligible impact

His irresponsible announcement on Monday made the headlines the world over.

However, overall property sales in Spain average 540,000 a year. Of which, 27,000 are accounted for by non-EU nationals, which is under 5%. In plain English, property sales to non-EU’s are a drop in the ocean and will not matter one iota in the overall grand scheme of things.

So even if he put into motion his announcement, it would serve no practical purpose and it would barely make a dent in rising house prices.

But now let’s move forward on why he cannot do it for technical reasons.

2. Why a 100% tax on home purchases by non-EUs cannot be done for technical reasons

Spain is a Member country of the European Union, which has guiding principles that undergird the Union and cannot be undermined by any of its members, including Spain. Amongst these core tenets is the free movement of goods and people. This principle, enshrined in multiple laws and regulations, including the Founding Treaty of Rome from 1957, cornerstone of the Union, is often overlooked by career politicians. It means that Member countries cannot enact laws which impede in any way, shape or manner investments, even if they are of non-EU origin i.e. British or American. The principle of primacy of European Union law is based on the idea that where a conflict arises between an aspect of EU law and an aspect of law in an EU Member State (national law), EU law will prevail.

As an example of this principle of primacy, some regions of Spain passed lenient tax breaks on inheritance law which in practice resulted in no inheritance tax to pay. The Spanish government restricted these tax breaks to Spanish nationals only.

This was challenged at Brussels on grounds of fiscal discrimination (as it affected the free movement of goods and people) towards fellow EU nationals inheriting assets in Spain. Spain was forced to open the door and allow these tax breaks to nationals of all EU Member states. However, Spain adamantly refused to apply the tax breaks to non-EU nationals. Once again, this was challenged and the European Court of Justice issued a landmark ruling on the  3^rd of September 2014 which basically slapped Spain on its wrist and forced it to extend the tax breaks to everyone, EU nationals and non-EU nationals alike, in effect quashing any fiscal discrimination which would be at loggerheads with the EUs Founding Principles.  

Long story short, Spain embarrassingly was forced to backpedal on its fiscal policy. As a result, none of my UK clients pay IHT on inheriting estates in Andalusia, as they benefit from these tax breaks that apply to all EU nationals, including non-EU's. For reference, my article at the time: Inheritance tax in Spain: regional tax reliefs to benefit ALL non-residents in the future (even outwith EU/EEA) – 26th August 2019

Spain is a country incardinated within the EU's legal and economic framework. On joining the Union, Spain ceded sovereignty over certain matters which affect the Union as a whole. Spain is not at liberty to adopt rash policies, such as applying a 100% tax rate on non-EU nationals. And even if it shot itself in the foot, ploughing foolishly ahead, this law would surely be appealed - and won - at the ECJ; which I remind everyone is the highest court in the land, even towering above Spain's Supreme Court. The ECJ embarrassingly overrules Spain’s Supreme Court all the time, as every lawyer knows.

The bottom line is that when you are a Member State of the Union, it's a two-way street; you do not get to do what you want unchecked.

Monday's announcement is another prime example of much ado about nothing. Yes, granted, it will make great headlines in the international press and will even deter investments in the short term, but ultimately it will not come to pass. It's just political posturing, and Spanish politicians have proven adept at it.

In short, I will not lose my sleep over it and neither should you.

At Larrain Nesbitt Abogados (LNA) we have over 22 years’ experience assisting clients buying, selling, or renting properties. We can also offer you a competitively priced accounting service to file your landlord taxes every tax quarter nationwide. We are also specialized in immigration & residency visas. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on our UK line (+44) 07543 838 218, Spanish line (+34) 952 19 22 88, or by completing our contact form to book an appointment.

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