Mortgage in Spain for UK citizens

The Spain-UK Double Tax Convention (London, 14 March 2013) covers taxes on income, capital gains and capital (wealth) when you have ties to both countries; it does not cover inheritance tax. The key rule: Spain can tax the income from property located in Spain, wherever you live; if you are UK resident, the UK taxes it too and deducts the Spanish tax paid (credit method, Article 22.2.a).

If you remain UK tax resident (you spend 183 days a year or less in Spain and your main economic interests are not here):

• IRNR (non-resident income tax): 24% on an imputed income of 1.1% of the cadastral value (if it was revised in the previous 10 years) or 2% otherwise of your Spanish property, even if you don't rent it out
• If you rent it out: 24% on gross rental income. Since Brexit the UK is outside the EU/EEA, so you can no longer deduct community fees, IBI, repairs or mortgage interest (art. 24.6 of the Non-Residents Income Tax Act)
• UK private pensions and UK salary: generally taxed in the UK only
• Spanish capital gains when you sell: 19% on the gain; the buyer withholds 3% of the price on account (art. 25 of the Non-Residents Income Tax Act)

If you become Spanish tax resident (more than 183 days a year in Spain, or your main economic interests are here — art. 9 of the Personal Income Tax Act):

• Worldwide income subject to Spanish IRPF, at progressive rates set jointly by the State and each region
• UK private pensions become taxable in Spain; UK government-service pensions generally stay taxable in the UK (the treaty sets the rules)
• If you move to Spain for work, the special regime of art. 93 of the Personal Income Tax Act ("Beckham Law") may apply: 24% on up to €600,000 of income (47% above) in the year you move and the following five, if you meet its conditions

Action point: consult a UK-Spanish tax specialist before purchasing if your situation is mixed (UK domicile + Spanish residency). Common case where double tax mistakes happen.

Your mortgage is in EUR. Your income is (probably) in GBP. Banks cover that risk in two ways: lending a lower percentage (Banca March publishes 60% instead of 70% when income is in another currency) or discounting the income they count towards affordability.

Practical impact: ask each bank how it treats GBP income and get the answer in writing before you sign any deposit contract. Your monthly payment in pounds will also move with the GBP/EUR rate for the life of the loan.

Strategies to mitigate:

• Open a EUR account in Spain and build up a cushion of several monthly payments before signing
• Compare the total cost of each transfer (exchange-rate margin plus fees) between your bank and a currency-transfer specialist
• Consider a foreign-currency mortgage if a bank offers one (Bankinter lists foreign-currency mortgages for non-residents): it removes the FX risk on the payment, but compare its conditions with a EUR loan
• Show stable GBP income (e.g., UK pension, permanent employment contract) and ask the bank how it weighs it