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16 Jan 2022

The major catch that can cost shoppers hundreds when buying abroad post-Brexit

European shops can knock hundreds of euros off on the spot, thanks to post-Brexit VAT savings - but caution is required

Since Brexit, residents of the UK have been able to reclaim VAT on many purchases bought in the EU. Pick up a dress for u20ac400 in Spain and you could get an instant discount of up to u20ac48.

But beware - if you go over your duty free spending allowance of £390, or choose the wrong item, you could get hit by a large tax bill on your return to the UK.

What sort of savings could I make?

If you buy, for example, a Karl Lagerfeld bag for u20ac445 in Galeries Lafayette, Paris - you'd potentially save u20ac54. There may be a small fee taken off that but as it's below your limit of £390 you wouldn't have to pay import VAT on your return to the UK.

What's the catch?

If you spend over £390 you'd be legally required to declare it on your return to the UK, and pay customs duty and import VAT (which is 20%).

You can claim a zero rate of customs duty on amounts higher than £390 if the goods originated in the EU (i.e. if they 'were grown or made in the EU using only EU ingredients or materials').

But it's easy to be caught out with this rule - you'll need a 'statement of origin' proving the goods originated in the EU, for a start. So, It's simpler to restrict yourself to purchases that fall in your allowance of £390.

What sorts of purchases could lead to a big bill?

For example: if you were really splashing out in Spain, buying a diamond engagement ring costing u20ac9,480 at Corte Ingles in Madrid would see you getting something like u20ac1,488 back - before fees.

However, legally you'd be required to declare it on your return to the UK, and the diamond and gold almost certainly don't come from the EU - so you'd have to pay customs duty and import VAT.

The taxes would be much higher than your saving, and it wouldn't be worth the hassle.

Is it worth travelling specifically to make a large purchase?

No. The maximum you can easily save, without jumping through hoops, is around £50. You should also take into account the environmental cost of travel.

If you're abroad anyway, for a holiday or travel for work, then it's easier to justify. Although you avoid paying taxes that pay for public services in your destination, most countries accept this as a price worth paying in order to promote visitors from abroad and economic activity.

In which EU countries can I get a VAT discount?

You can reclaim sales tax in any European Economic Area country (that's the EU plus Iceland, Norway and Liechtenstein) as well as in Switzerland. However, you can't reclaim it in the Canary islands as its tax rules are different to the rest of Spain.

Many other countries worldwide do allow non-residents to reclaim their equivalent of VAT. The USA, however, does not allow foreign tourists to reclaim tax.

Do all shops offer VAT discounts?

No, individual stores are not obliged to allow tax refunds. You'll need to ask whether they can provide you with the form you'll need before making your purchase.

You're likely to have the most success at big department stores or boutiques in major tourist destinations.

Can I get VAT discounts on everything I buy?

No. Your discount is only available on goods which are being exported - so you'll need to leave the product sealed until you've left the country. There is a possibility of more checks on goods coming into the UK from the EU in the future, as more Brexit restrictions are implemented.

You also have to leave the EU within three months after purchase.

However, you can get a discount for anything which has a sales tax in the country you're visiting and which can be carried in personal luggage. This might include jewellery, clothing, electronic equipment and even alcohol.

Some countries require you to spend over a certain amount to qualify for VAT discounts, but this is per total receipt, rather than per item.

If you're buying alcohol, be aware that there are also rules on how much you are allowed to bring to the UK.

Are all residents of the UK eligible for tax savings in the EU?

No. You have to live in England, Wales or Scotland. Residents of Northern Ireland are not eligible because of its different economic status post-Brexit.

What are the rules if I buy an expensive item that was made outside the EU?

For goods that cost over £390, rates vary. For jewellery, for example, customs duty is currently 2%. If you bought a ring that cost more than £390 you'd have to pay duty on the whole amount. However, you'll also have to pay import VAT - which is 20%.

So, if you saved u20ac314 on buying a u20ac2,000 ring in Spain, you'd then have to pay the UK government the equivalent of u20ac440 to bring it into the country. In other words, buying it abroad, in this case, wouldn't pay off.

It's better to ensure that you don't spend over £390 - so you don't have to pay taxes on your return.

Can I get all the VAT back?

Headlines have suggested that British tourists can get 'up to 24% back after Brexit'. This is because in Greece, for example, VAT is 24%. But this is slightly misleading.

Firstly, in Greece you can only get the highest amount back on purchases of over u20ac20,000 - which you'd then have to pay customs duty and import VAT on anyway.

Secondly, if you buy an item that costs u20ac350, that final price will already include the VAT. You're entitled to 24% of the net amount before the tax was added - not 24% of the whole amount.

You could get up to u20ac58 back on a u20ac350 purchase in Greece - 16.7% - although it will depend on what fees the tax rebate agent charges.

What do I need to do to get a VAT discount in the EU?

Step one

Check whether the shop you're visiting allows tax-free purchases. Many will display a sign in the window, or you can ask inside.

Step two

When paying, ask for the form you'll need to fill in and be prepared to show your passport and potentially proof that you're leaving the EU. For purchases worth more than £390 check that your goods were made in the EU and that you have a 'statement of origin'.

Step three

In some major retailers, for example the large Corte Ingles department stores in Madrid and Barcelona, they'll be able to give you the refund there and then. Some large shopping centres also have kiosks where you can obtain your refund.

More often you'll pay the full price for your purchases. You then need to take the form they'll give you and validate it at the customs kiosks you'll find at most airports and international hub train stations. You may also need to show the goods you've bought for inspection.

Step four

In all cases, even if you get the refund at the point of purchase, you'll need to send the form, stamped by customs, back to the shop or its tax refund handler within a certain period. This is typically around 15-21 days. If you don't send the form back the tax will be debited from your card again.

Key things to consider when planning to reclaim your VAT abroad

Make sure you leave enough time to validate your customs form at the airport. There can be long queues and if the form's not validated before you leave the EU you won't be able to claim. If you've already claimed the money will be deducted from your card.

Consider what you can carry in your hand luggage. It's not safe to leave valuable items in the hold of an aeroplane and your insurance probably won't cover you if they're lost or stolen.

If you're leaving the EU by train, make sure that you can find a customs kiosk on your route. The big Eurostar terminals do have them but other train stations won't.

Make sure that you don't have to pay taxes when you take the purchase back to the UK.

POSSIBLE SAVINGS IN EUROPE

FRANCE
Minimum spend u20ac100
VAT rebate 12%

GREECE
Minimum spend u20ac50
VAT rebate 8.7-16.7% (below u20ac6,000 - over u20ac20,000)

ITALY
Minimum spend u20ac155
VAT rebate 11.6-15.5% (below u20ac1,700 - over u20ac8,000)

PORTUGAL
Minimum spend u20ac61.50
VAT rebate 12-15% (below u20ac2,000 - over u20ac10,000)

SPAIN
Minimum spend none
VAT rebate 10.4-15.7% (below u20ac1,000 - over u20ac10,000)