Owning a second home abroad can trigger a cascade of taxes that continue long after the purchase price is paid. Six distinct tax exposures often go unnoticed by buyers, regardless of whether the property is occupied, rented, or left empty.
1. Imputed rental‑income tax
-
Spain – Non‑resident owners are taxed on an assumed rental income. The base is 1 % – 2 % of the cadastral value (1 % if the value was reassessed within the last ten years, otherwise 2 %). The resulting amount is then taxed at 19 % for EU residents or 24 % for others.
Example: A non‑EU owner of a home with a cadastral value of €100,000 pays roughly €250 per year. The tax is self‑assessed; the tax authority does not send a bill, so missed filings generate surcharges. -
Portugal – Adds a 0.7 % annual charge on the portion of residential holdings that exceeds €600,000, on top of ordinary property tax.
2. Wealth taxes
Only a few OECD members levy a broad annual tax on net wealth, but many apply specific wealth taxes to property:
| Country | Threshold | Rate | Scope |
|---|---|---|---|
| France | Net property value > €1.3 million (January 1) | 0.5 % – 1.5 % (mortgage debt deductible) | Residents taxed on worldwide property; non‑residents on French property only. |
| Spain | Regional tax on net assets > €700 k (non‑residents only on Spanish assets); National solidarity tax on net wealth > €3 million (applies above €3.7 million) | Up to 3.5 % on the highest fortunes | Regional tax may be waived in some regions (e.g., Madrid, Andalusia), but the national tax still applies. |
| Switzerland (canton level) | Net worth ≈ CHF 80 k in Zurich | Varies by canton, can affect high‑net‑worth individuals. |
3. Mandatory filings – property country vs. home country
- Property‑country filing – Example: Spain requires a non‑resident income‑tax return for the imputed rental income. Failure to file incurs monthly surcharges.
- Home‑country disclosure – Residents must declare foreign assets. In Spain, owners of foreign property worth > €50 k must file a foreign‑asset declaration. Prior to a 2022 EU Court ruling, penalties could exceed the asset’s value (e.g., a retiree faced a €442 k fine on €340 k of foreign savings). The regime has been reformed, but the filing obligation remains.
- Italy – Residents are taxed directly on foreign homes at 1.06 % of the property’s value each year.
- United States – Requires multiple forms (e.g., FBAR, Form 8938) with penalties for non‑filing.
Because more than 100 jurisdictions exchange financial‑account information annually under OECD frameworks (CRS, CARF), missing a filing in either country can trigger cross‑border penalties.
4. Capital‑gains tax on sale
- France – Non‑resident sellers pay 19 % on the gain plus social charges (7.5 % if the seller is covered by EU social security, the full rate otherwise).
- Mexico – The notary withholds either 25 % of the gross sale price or 35 % of the net gain from non‑resident sellers.
- United States – A foreign‑currency mortgage payoff can create a taxable gain in dollars even if the property’s local value is unchanged, due to exchange‑rate fluctuations.
5. Tax residency and the “permanent home” test
Tax residence is often decided by where a permanent home is available:
- Treaty tie‑breakers – Most double‑tax treaties follow the OECD model: the first test is the location of a permanent home that is continuously available. Owning an overseas apartment that is always at your disposal can give another country a strong claim to residency.
- Statutory rules – The UK’s statutory residency test can deem you UK resident if your only home is there and you spend sufficient time. Spain looks at the “center of economic interests.”
- Consequences – Dual residency can lead to worldwide income being taxed by both jurisdictions, with credits that may not fully offset the overlap.
6. Inheritance tax and forced‑heirship rules
- Location‑based inheritance tax – France, Spain, and Italy levy inheritance tax on property located within their borders, regardless of the deceased’s or heir’s residence.
- Forced‑heirship – Civil‑law countries reserve statutory shares for children and spouses, which can override a will.
- EU Regulation (Brussels IV) – Allows electing the law of one’s nationality to govern succession, potentially limiting forced‑heirship. However:
- The regulation governs succession, not tax; French inheritance tax still applies to French‑situated property.
- Courts may reject an elected foreign law on public‑policy grounds (e.g., Germany’s Federal Court in 2022).
A second will that includes a blanket revocation clause can unintentionally cancel the primary will, creating additional complications.
Practical takeaways
Low‑tax jurisdictions such as the United Arab Emirates or other territorial‑tax countries generally impose minimal or no taxes on foreign‑situated property, offering an alternative for buyers seeking a lighter tax burden.
