Brexit: the consequences for buyers and owners of property in Europe25th February 2016 More than two million British people now live in other European countries. To put that number into perspective, if those people lived in one UK city, it would be the second largest in the country behind London. It has therefore come as a surprise to some Britons living overseas, including many of our clients, that the arguments surrounding the European Union Referendum have not really delved into the consequences facing overseas property ownership should the British public vote to leave the EU.
Ever since the date for the Referendum was announced (23rd June 2016) this is a subject we are being asked about every day, from both current and prospective buyers in Europe.
As always with subjects like this, theories and realities can be very different. When David Cameron confirmed there would be a referendum this year hardliners in the ‘leave’ camp were quick to claim that British nationals living abroad would become illegal immigrants overnight. A theory transcending way beyond reality.
British people living in Europe make up an important part of the EU economy, whether its through property purchases and ownership, employment or trade. Brits are generally free to travel, live and work in almost all countries within the EU. Despite the worries of a snubbed backlash from the EU and its biggest countries, most on either side of the argument agree that pulling the rug from under current and prospective British owners would be counterproductive.
However, some areas could change. Below we take a look at these and the potential outcome of each.
If the UK were to leave the EU, visas may become necessary when visiting EU countries, although those with permanent residence in Europe would probably not need to get a visa for each visit. That is the theory. In reality a change on such a grand scale as this would be unlikely.
Even if Brits were eventually required to apply for visas for each visit, whilst inconvenient in the short term (an inconvenience that would no doubt come with a small cost), such a process hasn’t perturbed British from buying and visiting other countries which have such a process. Turkey is a good example, being in Europe but not part of the EU. The US is another. They have a very strict visa process yet America is still a popular country for Brits to visit and buy property.
At first glance this is probably the area where current and future owners, be they permanent residents or holiday-homers, are most exposed to change.
Council taxes, property taxes, rental income tax, wealth tax, capital gains tax, all could change in theory if the UK were to leave the EU. Countries like France used to take different and sometimes harsh view of nationalities outside the EU. Up until the start of 2015 owners in ‘uncooperative ‘ tax havens like Brunei, the Marshall Islands and Botswana were liable for Capital Gains tax at a rate of 75%. In the end, just like the 15.5% French ‘social charges’ added to British owners’ CGT and Rental Income tax rates, this levy was declared illegal by the European courts. British people are now liable for the same CGT as everyone else, irrespective of their place of residence.
At the moment taxation in France is the same for residents of the EU and the EEA (European Economic Area), which includes non-EU members. Therefore in theory if the UK were to leave the EU, the tax rules for British owners would remain equal to those inside the EU.
Also, and perhaps most importantly, the double tax treaties, which affect things like property rental income taxes (meaning owners are not charged twice for the same tax) will likely not be affected. This is because each double taxation treaty has been agreed with each individual country.
In France, British buyers have been enjoying a favourable mortgage market for almost two years. Rates are just above all-time lows and loan-to-values of up to 85% are readily available.
Countries outside the EU are often slightly less fortunate. Depending on personal affordability profiles, Brazilians can access loan-to-values of 60-80%, buyers from China 50-60% and Argentina 50-70%.
Following a Brexit, Brits with a less appealing profile would probably be charged higher interest rates and would have to put down a bigger deposit, but as France has such a regulated mortgage market, in reality this outcome is very different from what takes place right now.
In fact, with British buyers forming such a crucial part of many overseas property markets (France, Spain, Portugal), banks would most likely not want to mess around with the demand, especially when the risk of each individual client remains unchanged whether the UK is part of the EU or not.
Up until the end of 2015, a strong pound was a huge catalyst for British buying property in Europe with £1 buying above €1.4 on many occasions throughout the year.
The pound has now been tempered and the noise around the EU referendum is partly to blame. A Brexit could create a lot of movement in money markets, but this is no different from what buyers have to deal with normally.