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  • Writer's pictureInvestment Synergy Team

Second home vs Investment Property – What’s the difference?

Finding the right property in Spain when trying to combine the concept of a second home for yourself and buying for an investment can be quite a struggle….

There are clear differences between a second home and an investment property, and it is important to gain clarity on what you are buying for, once you are sure of your main motivation it will be easier to choose the right property or investment to suit your needs.

What factors make a property a second home?

Choosing a second home is all about YOU, the buyer, your personal wants and needs. You will be buying based on your favourite location, and the type of property you want to relax and unwind in. When choosing a second home rather than a temporary holiday home, issues of property size and space become important factors, along with how often you will use it, who will ultimately use the property and all the monetary concerns of maintenance whilst you are away from the property.

What factors make an investment property?

Typically, the two gauges used to assess the suitability of an investment property will be a) capital growth and b) the potential for rental income. For investors it should all be about the financials. If the figures stack up and there is a potential quick and easy exit strategy in the event of needing to sell, then personal tastes do not need to play a part in the decision-making process. However, all of which in today’s changing global landscape can be an unknown quantity.

What are the key elements of each, and how do they differ?

A decision on an investment property purchase should be with your HEAD and a second home purchase with your HEART, after all a second home is personal to you for your own enjoyment and to suit your own personal tastes. For an investment purchase the criteria should be all about financials, capital growth/ rental income and returns. Problems tend to arise when you are purchasing one property to satisfy both needs, personal and financial, which is a highly common scenario but often leads to conflict between head and heart, and usage and financials, not least the added potential complications of Brexit.

What are the key elements and challenges of post Brexit?

Residential property ownership rights are protected by the United Nations Universal Declaration of Human Rights and the European Convention on Human Rights and must be respected by EU member states.

UK nationals can continue to buy property in Spain, as before, owning property however does not automatically give you residence rights in Spain, Britons have lost the freedom of movement enjoyed before Brexit. You would need to apply for residence or restrict the time you spend in Spain (up to 90 days in any 180-day period – and this applies across the Schengen zone). Anyone caught overstaying face deportation/ fines /record in their passport and could complicate further travel and visa applications. Britons can still apply for residence through a work or ‘non – lucrative’ visa but the process has changed and become far more complex, and you would need to apply before moving to Spain. There is an option called the ‘Golden Visa’ which is more flexible – and could be obtained by purchasing a Spanish property worth at least 500,000 Euro or buying shares in a company or making a deposit in a Spanish bank of 1 million euro plus.

Taxation – The tax rules themselves have not changed with Brexit, but there are situations where non-EU residents are charged more than EU ones, which may impact you.

When buying a property in Spain you will either pay IVA (VAT) if it is a new build, or ITP (stamp duty) the rate is the same for EU and non- EU nationals.

Capital Gains Tax – If you are a resident in Spain when selling a property, the gain is taxed at progressive rates from 19% to 26%. Non – residents pay a flat 19% regardless of which country they live in.

Income Tax – A non-resident is taxed in Spain on income arising from Spanish property rental income at the flat rate of 19% if you are a tax resident within the EU/EEA but increases to 24% if resident outside the EU/EEA.

It is important to familiarise yourself with all Spanish tax implications before making any decision to buy a property in Spain – whether for personal use or as an investment.

Investment Synergy – A cautionary tale for those considering a direct property purchase.

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