A Taxing problem once again.
#1
Forum Regular
Thread Starter
Joined: Apr 2007
Posts: 68
A Taxing problem once again.
I’ve done a ‘search’ on the forum and read just about every relevant thread possible – thank you to all contributors – but I’d still like to run the following scenario past you experts.
I have owned two beautiful apartments in a leafy suburb of Torremolinos for the last 20 years. When I say ‘beautiful’, I’m not talking super luxury, nor penthouse glamour – just lovely apartments which folk clamour to rent from me, and yes, I know I’m very fortunate.
Situated some 100 metres from the prom, 450 metres from the Benalmadena marina and established amongst a myriad array of bars, cafes and supermarkets, it is an oasis of calm and tranquillity behind it’s secure gates. Shangri-la .... then I go and get myself a heart attack!!!
Okay, I’m aged 63, have paid all the statutory Spanish taxes and declare my rental income here in the UK. I am not a Spanish Resident. My wife is co-owner of one apartment, I am the full owner of the second – acquiring ownership almost by default (de fault of de relative who wanted to sell his share just after we’d bought it between us!!). My wife and I have Spanish Wills.
My query – queries – at last. If I pegged it, I’m assuming that the Capital Gains Tax rate of 18% would be applied to 50% of the Capital Gain on the shared apartment and 100% of the other – which would present my family with a CGT bill of over £40,000. This would have been covered by a Life Insurance Policy – but that has now expired and will not be renewed for obvious reasons.
So, I’m contemplating selling the smaller apartment, the one shared with my wife, which we bought in March 1989. I believe the Capital Gain (profit) on that will be circa £100,000. I also understand that that could be portrayed as a little less by applying the relevant coefficient to allow for inflation over the 20 years, but, for convenience of mental arithmetic, am I right in thinking that I/we will still be ‘hit’ for £18,000 tax on this profit. Bear in mind, I’ll be retaining the other apartment (making a new Will) but will still be wanting to bring a fair proportion of the sales money back to the UK.
Hope I’m not causing boredom by quoting my specifics – we each have a different scenario so forgive me if I appear to be hogging the stage.
Thanks.
I have owned two beautiful apartments in a leafy suburb of Torremolinos for the last 20 years. When I say ‘beautiful’, I’m not talking super luxury, nor penthouse glamour – just lovely apartments which folk clamour to rent from me, and yes, I know I’m very fortunate.
Situated some 100 metres from the prom, 450 metres from the Benalmadena marina and established amongst a myriad array of bars, cafes and supermarkets, it is an oasis of calm and tranquillity behind it’s secure gates. Shangri-la .... then I go and get myself a heart attack!!!
Okay, I’m aged 63, have paid all the statutory Spanish taxes and declare my rental income here in the UK. I am not a Spanish Resident. My wife is co-owner of one apartment, I am the full owner of the second – acquiring ownership almost by default (de fault of de relative who wanted to sell his share just after we’d bought it between us!!). My wife and I have Spanish Wills.
My query – queries – at last. If I pegged it, I’m assuming that the Capital Gains Tax rate of 18% would be applied to 50% of the Capital Gain on the shared apartment and 100% of the other – which would present my family with a CGT bill of over £40,000. This would have been covered by a Life Insurance Policy – but that has now expired and will not be renewed for obvious reasons.
So, I’m contemplating selling the smaller apartment, the one shared with my wife, which we bought in March 1989. I believe the Capital Gain (profit) on that will be circa £100,000. I also understand that that could be portrayed as a little less by applying the relevant coefficient to allow for inflation over the 20 years, but, for convenience of mental arithmetic, am I right in thinking that I/we will still be ‘hit’ for £18,000 tax on this profit. Bear in mind, I’ll be retaining the other apartment (making a new Will) but will still be wanting to bring a fair proportion of the sales money back to the UK.
Hope I’m not causing boredom by quoting my specifics – we each have a different scenario so forgive me if I appear to be hogging the stage.
Thanks.
#2
Re: A Taxing problem once again.
I think you are confusing your taxes here.
If you die, then Inheritance Tax will be due on the whole value of the properties that you own - ie 50% of one and 100% of the other.
The tax is paid by the beneficiaries, not by the "estate" as in the UK and must be paid before you are free to sell the assets.
If you sell the properties, CGT will be payable on the gain at 18%, less some indexation allowances and deductions for the costs of buying and selling. in fact, they will make a retention of 3% from the proceeds of the sale but you will still be liable for the full amount, less the 3%.
Incidentally, you are liable for Spanish tax on the rental income and it should have been declared.
It looks like you (or your successors) are in for some large tax bills. If you had been a Spanish tax resident much of this could be avoided or reduced significantly.
You can reduce IHT liability by leaving the property to as many beneficiaries as possible as they each get a basic allowance of about 16k and start paying at the lowest tax bands. If you leave it all to your wife she will get a very large bill.
Take some professional advice before you make a new will.
If you die, then Inheritance Tax will be due on the whole value of the properties that you own - ie 50% of one and 100% of the other.
The tax is paid by the beneficiaries, not by the "estate" as in the UK and must be paid before you are free to sell the assets.
If you sell the properties, CGT will be payable on the gain at 18%, less some indexation allowances and deductions for the costs of buying and selling. in fact, they will make a retention of 3% from the proceeds of the sale but you will still be liable for the full amount, less the 3%.
Incidentally, you are liable for Spanish tax on the rental income and it should have been declared.
It looks like you (or your successors) are in for some large tax bills. If you had been a Spanish tax resident much of this could be avoided or reduced significantly.
You can reduce IHT liability by leaving the property to as many beneficiaries as possible as they each get a basic allowance of about 16k and start paying at the lowest tax bands. If you leave it all to your wife she will get a very large bill.
Take some professional advice before you make a new will.
#3
Re: A Taxing problem once again.
I think you are confusing your taxes here.
If you die, then Inheritance Tax will be due on the whole value of the properties that you own - ie 50% of one and 100% of the other.
The tax is paid by the beneficiaries, not by the "estate" as in the UK and must be paid before you are free to sell the assets.
If you sell the properties, CGT will be payable on the gain at 18%, less some indexation allowances and deductions for the costs of buying and selling. in fact, they will make a retention of 3% from the proceeds of the sale but you will still be liable for the full amount, less the 3%.
Incidentally, you are liable for Spanish tax on the rental income and it should have been declared.
It looks like you (or your successors) are in for some large tax bills. If you had been a Spanish tax resident much of this could be avoided or reduced significantly.
You can reduce IHT liability by leaving the property to as many beneficiaries as possible as they each get a basic allowance of about 16k and start paying at the lowest tax bands. If you leave it all to your wife she will get a very large bill.
Take some professional advice before you make a new will.
If you die, then Inheritance Tax will be due on the whole value of the properties that you own - ie 50% of one and 100% of the other.
The tax is paid by the beneficiaries, not by the "estate" as in the UK and must be paid before you are free to sell the assets.
If you sell the properties, CGT will be payable on the gain at 18%, less some indexation allowances and deductions for the costs of buying and selling. in fact, they will make a retention of 3% from the proceeds of the sale but you will still be liable for the full amount, less the 3%.
Incidentally, you are liable for Spanish tax on the rental income and it should have been declared.
It looks like you (or your successors) are in for some large tax bills. If you had been a Spanish tax resident much of this could be avoided or reduced significantly.
You can reduce IHT liability by leaving the property to as many beneficiaries as possible as they each get a basic allowance of about 16k and start paying at the lowest tax bands. If you leave it all to your wife she will get a very large bill.
Take some professional advice before you make a new will.
The rates of succession tax are very high if you leave property to non-residents but can be reduced if you leave it to a Spanish resident.
#4
Forum Regular
Thread Starter
Joined: Apr 2007
Posts: 68
Re: A Taxing problem once again.
I think you are confusing your taxes here.
If you die, then Inheritance Tax will be due on the whole value of the properties that you own - ie 50% of one and 100% of the other.
The tax is paid by the beneficiaries, not by the "estate" as in the UK and must be paid before you are free to sell the assets.
If you sell the properties, CGT will be payable on the gain at 18%, less some indexation allowances and deductions for the costs of buying and selling. in fact, they will make a retention of 3% from the proceeds of the sale but you will still be liable for the full amount, less the 3%.
Incidentally, you are liable for Spanish tax on the rental income and it should have been declared.
It looks like you (or your successors) are in for some large tax bills. If you had been a Spanish tax resident much of this could be avoided or reduced significantly.
You can reduce IHT liability by leaving the property to as many beneficiaries as possible as they each get a basic allowance of about 16k and start paying at the lowest tax bands. If you leave it all to your wife she will get a very large bill.
Take some professional advice before you make a new will.
If you die, then Inheritance Tax will be due on the whole value of the properties that you own - ie 50% of one and 100% of the other.
The tax is paid by the beneficiaries, not by the "estate" as in the UK and must be paid before you are free to sell the assets.
If you sell the properties, CGT will be payable on the gain at 18%, less some indexation allowances and deductions for the costs of buying and selling. in fact, they will make a retention of 3% from the proceeds of the sale but you will still be liable for the full amount, less the 3%.
Incidentally, you are liable for Spanish tax on the rental income and it should have been declared.
It looks like you (or your successors) are in for some large tax bills. If you had been a Spanish tax resident much of this could be avoided or reduced significantly.
You can reduce IHT liability by leaving the property to as many beneficiaries as possible as they each get a basic allowance of about 16k and start paying at the lowest tax bands. If you leave it all to your wife she will get a very large bill.
Take some professional advice before you make a new will.
I guessed there would be a substantial tax bill to pay, and the very thing I'm trying to avoid is my wife/beneficiaries being faced with a substantial tax bill before they could take over the ownership of the properties. Fortunately, I have recovered enough to handle all this now, and it's unlikely my demise will be imminent (something none of us can foretell) so I'm hoping I will have time to (a) diminish the tax liability (b) provide the funds to enable the IHT to be settled immediately, but had a feeling deep down that the number of year's ownership and the contributions paid to the local economy offered some allowances against the 18%. Evidently not.
Never mind - the huge appreciation in value of my initial investment will more than compensate for the taxes due and I will still have a nice property to pass to my family.
Thanks for your advice re the will - I have tax consultants in the UK, I guess I'd better find one for Spain - and thanks to all contributors who respond or have previously posted elsewhere.
Because of my work regime in the UK and the brief, albeit frequent, visits to Spain, I never felt it appropriate or viable to become a Resident, although I believe that the rules have been relaxed in recent years.
#7
Re: A Taxing problem once again.
That is not a big surprise to me, I found it difficult enough to find one competent in UK Law. However my point was most professionals should know their limitations and advise you accordingly.
#8
Forum Regular
Thread Starter
Joined: Apr 2007
Posts: 68
Re: A Taxing problem once again.
I'm totally disillusioned by my Tax folk here - the 2009 Budget announced a change to the tax rules re rent from overseas properties, there was a deadline (July 31st 2009) applied for those needing to back date their application to change their property status. When did I discover it ? August 5th!
#9
Re: A Taxing problem once again.
I'm totally disillusioned by my Tax folk here - the 2009 Budget announced a change to the tax rules re rent from overseas properties, there was a deadline (July 31st 2009) applied for those needing to back date their application to change their property status. When did I discover it ? August 5th!
#10
Forum Regular
Thread Starter
Joined: Apr 2007
Posts: 68
Re: A Taxing problem once again.
Thank you again everyone.
#11
Forum Regular
Thread Starter
Joined: Apr 2007
Posts: 68
Re: A Taxing problem once again.
It is said that "A little knowledge is a dangerous thing" - sadly, my knowledge is very little hence my need to post these queries.
I am now confused by the level of Inheritance Tax levied in Spain - reading that it is 40%, then 16% or anything up to 80%. Can someone please advise me as to the current (2009) level?
Doing what homework I can now, before embarking on my next trip to Spain to set the wheels in motion.
I am now confused by the level of Inheritance Tax levied in Spain - reading that it is 40%, then 16% or anything up to 80%. Can someone please advise me as to the current (2009) level?
Doing what homework I can now, before embarking on my next trip to Spain to set the wheels in motion.
#12
Re: A Taxing problem once again.
It is said that "A little knowledge is a dangerous thing" - sadly, my knowledge is very little hence my need to post these queries.
I am now confused by the level of Inheritance Tax levied in Spain - reading that it is 40%, then 16% or anything up to 80%. Can someone please advise me as to the current (2009) level?
Doing what homework I can now, before embarking on my next trip to Spain to set the wheels in motion.
I am now confused by the level of Inheritance Tax levied in Spain - reading that it is 40%, then 16% or anything up to 80%. Can someone please advise me as to the current (2009) level?
Doing what homework I can now, before embarking on my next trip to Spain to set the wheels in motion.
In valencia, if you pass on your estate to resident, family, members then I believe you can get 99% allowance. that is, you only pay 1% tax.
Leaving it to non-residents is a whole new ball-of-wax!
#13
Re: A Taxing problem once again.
Yes, the way it is calculated and the way it is paid is different from UK IHT but it's still an inheritance tax.
What you haven't mentioned is that it is also a gift tax - the difference from UK gift tax being that there is no 7 year rule - all gifts are taxable at the time the gift is made.
It is an extraordinarily complicated tax. There are nationwide allowances combined with many different regional allowances and they are changing all the time.These special exemptions/allowances usually only apply to residents and often only to residents of the same region.
The tax rates are the same across the country and the basic rates go up to 34%. However the rates also increase based on the family relationship between the deceased and the inheritor and also the wealth of the inheritor. The maximum rate (leaving it to a rich non relative) is 81.6%
It's an area where timely professional advice can potentially save your beneficiaries a whole load of money as there are many ways to avoid it completely or at least reduce it.
#14
Forum Regular
Thread Starter
Joined: Apr 2007
Posts: 68
Re: A Taxing problem once again.
Thank you for that - Fred James - I guess I'll probe a little further but will then leave it down to my Fiscal Representative, who has already been briefed as to what I need, in readiness for him to tell me what I will have (not always the same thing ).
Yes, there are, or were, ways I could have diminished the liability - but how many would have bought an apartment and put it into their children's names when the elder was 19 and the younger 15? And becoming a resident? Impossible as well as impracticable for many - my elderly/sick mum had curtailed any visit to my apartments for two years through no fault of her's. Life is not a very predictable affair - except for death and taxes.
Thank you again for all contributions. I'm surprised that a certain advocate of Limited Companies has not appeared - he seems to have most forums monitored and is conspicuous by his absence.
Yes, there are, or were, ways I could have diminished the liability - but how many would have bought an apartment and put it into their children's names when the elder was 19 and the younger 15? And becoming a resident? Impossible as well as impracticable for many - my elderly/sick mum had curtailed any visit to my apartments for two years through no fault of her's. Life is not a very predictable affair - except for death and taxes.
Thank you again for all contributions. I'm surprised that a certain advocate of Limited Companies has not appeared - he seems to have most forums monitored and is conspicuous by his absence.
#15
Re: A Taxing problem once again.
Should I wish to change ownership of my property from myself as sole owner to joint ownership with one or more of my family what taxes and costs would be due on the partial transfer?
Many thanks in advance.
Many thanks in advance.