Simon_100

I'm sorry if this has come up before and/or pertains to ex-pats everywhere . . .

In brief, as of next April (2015) UK CGT will apply to non-residents selling their houses. But the tax will apply only for gains from that date, But how is the initial valuation, i.e. an individual property at as April 5th, 2015, arrived at?

My particular concern is that my house is worth considerably more than similar ones in the same post-code district. I've searched and searched, including downloads from HMRC, but there is nothing specific about this.

Thanks

Simon

Fred James

The reason there is nothing specific about it is because they haven't decided yet.

They have published a consultation document which gives an idea of the possible new rules, but the final rules will not be published until the end of the year.

guirijohn

The Finance Bill 2015 will be published on 10th December 2014. As you say only gains from April 6th 2015 will be taxed. It is likely that the overall gain over the period of ownership will be time apportioned. The alternative of valuing individual properties at 5th April 2015 would be too costly and indexing too imprecise given the disparity in house price growth throughout the UK

The other thing to bear in mind is that there will be a withholding tax of part of the proceeds for non resident sellers. I doubt if there will be a reduced rate for persons selling soon after the new tax is introduced, but it may be possible to pay the actual tax liability at the the time of sale.

Non Residents will not normally be submitting tax returns so a new form of return may be introduced to enable earlier repayments, or to avoid the withholding altogether.

Simon_100

Thanks chaps,

What a bloody mess!

Simon

lee1lpool

Hi Simon, what is CGT? You don`t state if your house your selling is a Spanish property or UK property?

Like yourself I`m a none resident as I reside in the UK. but I own a property in Spain. I also own a property in the UK. I plan to sell my UK property in about a year or so and move permanently to Spain. Will this CRG thing apply to me if I sell my UK property?

Thanks,

Lee

snikpoh

"Capital Gains Tax" is a tax on the gain on any asset, like a house.

If you get the timing right, then you may not have to pay extra tax in Spain. Get it wrong and you may pay CGT in UK and more in Spain.

By the way, you are NON-RESIDENT not NONE RESIDENT - every one must be resident somewhere

lee1lpool

Thanks, ah yea I forgot the abbreviation CGT=Capital Gains Tax.

If I sold my UK house now I would not be subject to any CGT. Hope the rule still applies in a years time.

I`m a UK resident, and a NON-RESIDENT of Spain(cheers for pointing out the error, lol).

Simon_100

Hello Lee,

I think it's been cleared up but to clarify my situation:

I'm resident in Spain with a Uk property that is let at present. The new CGT rules close a 'loophole' in which UK non-residents - I actually hate the term 'ex-pats'! - were exempt from CGT on residential property.

The good news is that the 2014 Dual Taxation Convention between Spain and the UK hands over CGT to the UK system - otherwise it would have been much, much worse!

In your circumstances, your sale would attract CGT as soon as you became non-resident in the UK, no matter where you are.

If you sold your house in Spain now it would attract Spanish CGT and this would remain the case until you are resident in Spain and are 'habitually resident' in the property for at least three years!

I hope the above is correct, I'm not an expert, so over to you guys who are . . .

Meanwhile; as I understand it, the proceeds from the sale of the UK house would not be considered fro IRPF (Impuesto sobre la renta de personas fisicas, i.e. personal income tax) if some of them were brought here. Is this the case?

Regs

Simon

Fred James

I'm not sure that is correct.

If you compare the old and new tax treaties, there is no change to the wording.

Article 13 CAPITAL GAINS
1. Gains derived by a resident of a Contracting State from the alienation of
immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.

That just means the UK is allowed to tax the gain, it doesn't say that Spain cannot tax it as well.

If it was only taxable in the UK the wording would include "may only be taxed in that State".

Clearly the usual double taxation rule applies that allows you to offset any UK tax against any Spanish tax on the same gain.

Yes, you are right that the proceeds would not be taxable as income in Spain.

Simon_100

That sounds like the typical 'Catch 22' situation. But isn't there a convention that one pays either one tax or the other, whichever is less to the tax payer?

Simon

Fred James

Yes, there is a convention, which I mentioned in my post.

You pay the tax in the country of residence and deduct the tax paid in the other country.

CapnBilly

Just to clarify, assuming you are under 65, then even after the 3 years habitual residence, the sale proceeds would be liable to capital gains unless they are reinvested in another residence, which can be in the UK or elsewhere.

Simon_100

I'm not at all sure Billy. I hadn't noticed the clause about buying another residence until you pointed this out.

The trouble is that one can't find anywhere with the full information, even my Spanish accountant doesn't seem to know the full picture. Ergo, incomplete information is actually worthless information!

When I filled in my 'modulo 720' concerning my UK house I had to get help from the boss of the provincial tax office himself as no-one else in the building knew how to do this!

He also told me that there are deductions that allow for inflation over the years, wear and tear, maintenance, etc. but how much this would account for I have no idea, nor does anyone else it seems.

I've found allusions to this, but a) I can't make head not tail of it and b) does this apply to properties overseas, i.e outside Spain:

"However, if the property being sold was acquired before December 31, 1994, this capital gain gets reduced by 11.11% per year for each year (above two) during which the asset was held. This holding period is calculated by taking the number of years between the date of acquisition and December 31, 1996 and rounding up."

From Strongabogados

So, does this apply to a UK house bought in 1992, apparently, but how many years are these inflation adjustment allowed, it looks as if it's just two, i.e. 1994-96. Not exactly a scintillating figure.

Here's another typical example that I found following your 'over 65' trail,

"There are a few situations in which you aren’t liable for capital gains tax. If you’re a resident of Spain and are 65 or over, you will be exempt from CGT. Residents below the age of 65 are also exempt from CGT provided that the property they’re selling is their principal residence, they’ve lived there for three years and they plan to buy another home in Spain within three years."

From 'Just Landed'

But does this also apply to foreign, i.e. outside Spain, property? Am I wiser to wait until I/we are 65 before selling and investing the proceeds in a pension, etc.

I really need to know the answers to the above questions as I have to make major decisions now about my and my wife's future finances. This kind of worry will ensure that won0't live to 65 - and then there's the inheritance tax that Mrs S would have to face on top of the CGT as she would have to sell the house in order to pay the CGT, incidentally depriving her of most of her income . . .

In desperation!

Simon

Neptuno

I really need to know the answers to the above questions as I have to make major decisions now about my and my wife's future finances. This kind of worry will ensure that won0't live to 65 - and then there's the inheritance tax that Mrs S would have to face ( could be a lot!)on top of the CGT as she would have to sell the house in order to pay the CGT, incidentally depriving her of most of her income . . .

Are you confusing IHT and CG?
If so, she can't sell the house until you have paid IHT, and then when she does there will be CGT, which she won't pay if fiscally resident, over 65 and lived in the house for 3 years.
If she doesn't satisfy that criteria, she still won't pay cgt or the whole amount if she invests the proceeds or some of them on another property.
If I had my time again I would not sell up and retire to Spain.
I would either have holidays in Spain, spending less than 90 days each time, or buy a small place and spend less than 183 days there, so as not to be tax resident.

Simon_100

Hi matey,

No, I don't think I0m confusing the two. She would have to sell the UK house as it's the only asset that she could realistically have access to to raise the money - ironically on the self same house. Obviously we haven't lived in the UK house for the last three years as we live here, that's the whole point.

"if she invests the proceeds or some of them on another property." What do you mean by 'some of them'? How much, what happens to the rest, would that be CGT liable? . . .

I couldn't agree more about not being resident here if one had ones' time over again, but there it is . . .

Regs

Simon