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35% Capital Gains Tax for Non-Resident

35% Capital Gains Tax for Non-Resident

Old Jul 19th 2006, 10:53 pm
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Default 35% Capital Gains Tax for Non-Resident

Surely this is discriminating against non-residents as residents only have to pay 15% or nothing if a resident pensioner and buying another similar priced property ?. I think I will get my MEP (whoever they are) and complain as Spain a member of the EEC.

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Regards

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Old Jul 19th 2006, 11:19 pm
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Default Re: 35% Capital Gains Tax for Non-Resident

See this thread:

http://britishexpats.com/forum/showthread.php?t=385737

If you wish to read the details of the 'reforma fiscal' you can find it here:

http://documentacion.meh.es/doc/Gabi...a%20fiscal.pdf

Last edited by Beachcomber; Jul 19th 2006 at 11:22 pm.
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Old Jul 19th 2006, 11:41 pm
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Default Re: 35% Capital Gains Tax for Non-Resident

Originally Posted by ScotsForEver
Surely this is discriminating against non-residents as residents only have to pay 15% or nothing if a resident pensioner and buying another similar priced property ?. I think I will get my MEP (whoever they are) and complain as Spain a member of the EEC.

Views good people ?.

Regards

John
From January 2007 it is meant to be coming down to 15% in line with residents, which I was told, but may be wrong. Hopefully not.
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Old Jul 20th 2006, 12:24 am
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Default Re: 35% Capital Gains Tax for Non-Resident

For anyone who isn't inclined to click on the link to the other thread here is a copy of one of my posts on that thread:
Originally Posted by Beachcomber
It is currently 35% for a non-resident and 15% for a resident.

There is draft legislation due to be heard in parliament in the next month or so with a proposal to make a flat rate CGT of 18% for both residents and non-residents.

This is only draft legislation and may or may not become law.
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Old Jul 20th 2006, 12:36 am
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Default Re: 35% Capital Gains Tax for Non-Resident

Originally Posted by ScotsForEver
Surely this is discriminating against non-residents as residents only have to pay 15% or nothing if a resident pensioner and buying another similar priced property ?. I think I will get my MEP (whoever they are) and complain as Spain a member of the EEC.

Views good people ?.

Regards

John
Its to stop people buying property, making a killing and then taking the proceeds out of Spain.
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Old Jul 20th 2006, 1:31 am
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Default Re: 35% Capital Gains Tax for Non-Resident

I take you viewpoint but people's circumstances can change. I bought it as a holiday home in Costa Blanca and not like some people who see property as a piggy bank especially in south-east England. Spain has changed for the worse too much in the 8 years since I bought it (e.g. too many Brits and Irish, Irish bars everywhere, inflation is rife, the Spanish are killing the golden goose, etc, etc) so thinking about selling up but why should I give 1/3 rd of the profit to the Spanish taxman.

Regards

John
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Old Jul 20th 2006, 1:51 am
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Default Re: 35% Capital Gains Tax for Non-Resident

Originally Posted by ScotsForEver
I take you viewpoint but people's circumstances can change. I bought it as a holiday home in Costa Blanca and not like some people who see property as a piggy bank especially in south-east England. Spain has changed for the worse too much in the 8 years since I bought it (e.g. too many Brits and Irish, Irish bars everywhere, inflation is rife, the Spanish are killing the golden goose, etc, etc) so thinking about selling up but why should I give 1/3 rd of the profit to the Spanish taxman.

Regards

John
How much would the CGT be in Scotland for a Spanish guy who wanted to sell up and leave Scotland ?
Surely you looked into taxes etc when you bought it.
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Old Jul 20th 2006, 3:30 am
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Default Re: 35% Capital Gains Tax for Non-Resident

If the reduction to 18% does become law the tax authorities will be looking for ways to make up the shortfall.

One thing they are likely to do is insist on production of non-resident tax returns for at least the past four years before a sale is allowed to go ahead.
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Old Jul 20th 2006, 3:49 am
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Default Re: 35% Capital Gains Tax for Non-Resident

Originally Posted by ScotsForEver
I take you viewpoint but people's circumstances can change. I bought it as a holiday home in Costa Blanca and not like some people who see property as a piggy bank especially in south-east England. Spain has changed for the worse too much in the 8 years since I bought it (e.g. too many Brits and Irish, Irish bars everywhere, inflation is rife, the Spanish are killing the golden goose, etc, etc) so thinking about selling up but why should I give 1/3 rd of the profit to the Spanish taxman.

Regards

John
You won't have to give 35% John - their is an indexation allowance called the coeficiente de actualizacion which reduces your profit by indexing the purchase cost upwards. For 8 years this will be around a 20% "increase" in your buying cost (which includes the taxes and notary etc costs of buying). i.e. if you bought for 100,000 and had 10,000 worth of estate agent, lawyer, notary & taxes when you bought then your base is 110,000 x 20% coeficient = 132,000 "buying" cost to use when you calculate your profit.

You can also deduct you selling costs (Agent, abogado etc) to reduce your "selling cost" before you calculate the profit.

I am sure I read somewhere that after 10 years there was no capital gains tax but you may want to check that.
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Old Jul 20th 2006, 4:49 am
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Default Re: 35% Capital Gains Tax for Non-Resident

If you are a NON Resident having a property in Spain and decide to sell it and not reinvest in Spain, then I assume that at the time of sale, the Notario ensures that a 5% of the Property Sale Value as shown in the sale deeds is witheld. I presume that this is to try and ensure that the seller completes the Gains Tax declaration in Spain and either claims a refund or has to pay the additional sum.
I was wondering the other day what would happen if the seller was a UK citizen with fiscal responsibility to the Her Majesty's Inland Revenue and declared the Spanish property as a Capital Gain on the annual income tax declaration in UK. And that the UK seller had no intention to invest in any other property in Spain.
Surely if the UK tax man calculated the additional tax due AND it worked out as maybe less than the current Spanish iniquitous tax, then the UK seller could rightly declare the proceeds according to his own tax authorities rules. Surely this is fair according to the EEC regulations? Double taxation and all that harmonisation.
Of course, the 5% withheld from the sale price would effectively become another of the sales costs.
Or maybe you can't do this !
If a Spaniard held property (a 2nd home) in UK and sold it but reported his income to the Hacienda in Spain, would he have to go to the UK Income Tax inspector and pay UK Inland revenue any CGT ? Or would the UK authorities be none the wiser?
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Old Jul 20th 2006, 5:17 am
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Default Re: 35% Capital Gains Tax for Non-Resident

For a property purchased in, say, 1998 the coefficient is 1,1692 (just under 17%. This changes each year.

The ten year rule only applies to properties purchased prior to 31st December 1986 then the rules changed and purchasing after that date means that you will never reach the stage where no CGT is payable.

The tax is payable in Spain even for a non-resident UK citizen.

The requirement to prove payment of non-resident taxes before a sale is permitted is likely to take the form of a certificate from AEAT showing that they have been paid.

If you haven't been paying them you can make the declarations for the previous years but these will be subject of fines and surcharges and the total amount could well come to more than the saving made by the reduction of CGT.
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Old Jul 20th 2006, 9:08 am
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Default Re: 35% Capital Gains Tax for Non-Resident

Originally Posted by Nige
I was wondering the other day what would happen if the seller was a UK citizen with fiscal responsibility to the Her Majesty's Inland Revenue and declared the Spanish property as a Capital Gain on the annual income tax declaration in UK. And that the UK seller had no intention to invest in any other property in Spain.
Surely if the UK tax man calculated the additional tax due AND it worked out as maybe less than the current Spanish iniquitous tax, then the UK seller could rightly declare the proceeds according to his own tax authorities rules. Surely this is fair according to the EEC regulations? Double taxation and all that harmonisation.
Of course, the 5% withheld from the sale price would effectively become another of the sales costs. Or maybe you can't do this !
The current Spanish "iniquitous" tax is 35% which is less than the UK 40%.

CGT is in theory is due in both Spain and the UK if you are tax resident in the UK. Because the property is in Spain you will pay Spanish CGT first.

You can then deduct this from your UK CGT liability. As the UK CGT bill will be higher than the Spanish bill you will pay 35% in Spain and a small extra amount in the UK.

Assuming you tell HM revenue of course!

The 5% is a payment of the CGT on account. In many cases the cheapest option is to pay the 5% and do a runner - it is cheaper than the CGT in most cases - dont come back to Spain though!
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Old Jul 20th 2006, 8:11 pm
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Default Re: 35% Capital Gains Tax for Non-Resident

Originally Posted by Fred James
The current Spanish "iniquitous" tax is 35% which is less than the UK 40%.

CGT is in theory is due in both Spain and the UK if you are tax resident in the UK. Because the property is in Spain you will pay Spanish CGT first.

You can then deduct this from your UK CGT liability. As the UK CGT bill will be higher than the Spanish bill you will pay 35% in Spain and a small extra amount in the UK.

Assuming you tell HM revenue of course!

The 5% is a payment of the CGT on account. In many cases the cheapest option is to pay the 5% and do a runner - it is cheaper than the CGT in most cases - dont come back to Spain though!
Fred- I do not agree that in UK you pay 40% of your Capaital Gain on the sale of a 2nd home. Firstly there is the personal allowance which in this tax year (2006/7) is UKP 8,800 which is about €12,500 Per Person so if dual ownership the Tax free allowance for Capital Gains amounts to €25,000.
Then there is the way Tax is collected. It's added to your other income so if your basic income is modest then the lower bandings of Tax apply first. Remember it is the husband AND wife if jointly owned. The 40% rate is at the top end of earnings and may not apply if Personal Allowances are calculated.
Then there is some form of Taper relief if you hold the Asset for a number of years. I think it means that after 10 years of ownership you apply 60% of the Gain and NOT the full gain.
All the above means that in practice, an individual will never pay as much as 40% CGT in UK. Unlike the 'iniquitous' 35% flat rat that apparently is going to change next year !
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Old Jul 20th 2006, 8:48 pm
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Default Re: 35% Capital Gains Tax for Non-Resident

Great stuff, thanks for the feedback.

If I do sell I will pay what tax I have to.

Deviation as a matter of interest where would be the best place in Spain to live away from karaoke and all the other things I mentioned and not too hot (e.g. Seville) ?. I thought about just inland from Valencia.

Regards

John
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