Stop tax bias against Britons, Spain told

The European Commission is calling on Spain to reduce tax for foreigners selling property there.

The commission says foreigners are 'discriminated against' because they pay a 35 per cent levy on capital gains generated by property, but Spaniards pay only 15 per cent.

The 'difference in the tax treatment of the two categories of taxpayers constitutes indirect discrimination on the grounds of nationality prohibited by the Treaty [of Rome]', it says. Brussels has formally requested the Spanish government to amend its legislation.

The commission's move comes as the laws of individual member states are coming under increasingly close scrutiny to ensure they comply with Europe-wide policy.

Its officials say the 35 per cent tax rate for foreigners, as opposed to 15 per cent for locals, 'results in a higher tax burden on non-resident individuals in situations objectively similar to those of residents.'

This may also impede Spanish employers from attracting foreigners into their labour market, the officials warn.

Although the Spanish government has yet to comment, observers believe ending the discriminatory rate would fit in with its policy of attacking the country's large black economy with lower, more transparent taxes.

Property levies have long been an area of widespread avoidance in Spain - for foreigners and locals - so a fairer rate for foreigners might lead to increased revenues, if house vendors were encouraged to stay within the law.

Non-Spaniards would also benefit from the progressive discounts on capital gains that are available to Spaniards if they sell a property within the first year of ownership. Any profit derived in this way would then be counted purely as 'income' and be taxed according to the Spanish income tax rates.

Spanish property experts have hailed the commission's move as timely. It could help to encourage a further influx of British homebuyers expected when UK pension rules change on 6 April.

Then British investors will be able to include property at home and abroad in portfolios for SIPPS, the Self-Invested Personal Pensions scheme.