Spain Plans 100% Tax on Non-EU Property Buyers. Should the UK Follow Suit?

Spain is considering introducing a major policy to tackle its housing crisis. The country is planning to impose a 100% tax on the purchase of properties by citizens of countries outside the European Union. This would include UK nationals too.

This move, according to Spanish authorities, is aimed at cooling off foreign investment in real estate to make housing available to Spanish residents. With the UK having its own set of housing issues, one can wonder if similar measures could benefit Britain too.

Spain's Proposed 100% Tax

Prime Minister Pedro Sánchez has announced that Spain will impose heavy taxes on the buying of property by citizens from outside the European Union. This would effectively double the price of purchase for foreign buyers. The measure is aimed at drastically reducing the number of properties bought by non-residents, mainly for investment or as a vacation home, thus freeing homes for the locals.

It is part of a wider initiative to deal with spiralling housing costs, where rentals to short-term tourists have driven up the affordability crisis in big cities such as Madrid and Barcelona. The government has promised to build more public housing, tax holiday rentals more heavily, and give tax incentives to landlords who let properties at affordable rent limits.

UK's Current Property Tax Landscape

UK property taxes have recently seen a slew of changes, including new rates for SDLT and CGT. From 30 October 2024, the main rates of Capital Gains Tax (CGT) were increased to 18% and 24%. Meanwhile, the 10% rate of CGT for disposals attracting Business Asset Disposal Relief (BADR) will increase to 14% from April 2025 and to 18% from April 2026.

For SDLT, two significant changes took effect from 31 October 2024. The additional stamp duty surcharge on second or additional homes purchased by individuals increased from 3% to 5%. For companies and ‘non-natural persons’ (such as corporate entities) purchasing UK residential property valued above £500,000, the SDLT rate went from 15% to 17%.

These changes represent a tight balancing between raising much-needed revenue on the one side and preventing disruptions in the domestic residential real estate market on the other.

Should the UK Do Something Similar?

While Spain's aggressive approach tries to reduce non-residents from playing an outsized role in its housing market, the UK has not shown any signs that it is planning to do something similar. In reaction to house affordability concerns, the government in the UK has levied a 2% SDLT surcharge for non-UK residents acquiring residential property in England and Northern Ireland with effect from 1 April 2021. But this surcharge is nowhere close to the proposed 100% tax in Spain.

Introducing such a high tax in the UK, just like what Spain has done, might have wider implications in terms of deterring overseas investment into the UK and impacting the broader economy. Housing affordability gains need to be weighed against reduced investment and economic risks.

Conclusion

In conclusion, while Spain’s proposed 100% tax on non-EU property buyers aims to tackle its housing crisis by limiting foreign investment, it remains to be seen whether such an extreme measure would work effectively in the UK. The introduction of this tax in Spain reflects a direct response to soaring housing costs in major cities, but it risks alienating foreign investors and could have a negative impact on the broader economy. The UK has already implemented a 2% stamp duty surcharge for non-UK residents, a move that strikes a balance between addressing affordability concerns and maintaining international investment.

For the UK, following Spain’s example with a 100% tax might not be the best solution. While cooling foreign investment could free up more housing for locals, it could also deter much-needed capital, which is essential for economic growth and the stability of the property market. The UK government must carefully consider the potential trade-offs between tackling housing affordability and ensuring a competitive market that attracts investment. A more measured approach, involving targeted policies rather than drastic tax hikes, may be more effective in addressing the nation’s housing challenges without damaging its real estate sector or the broader economy.