CGT and Spanish Investments
Have you made a profit on your Spanish investment? Are you looking to sell up and move? What is your CGT position?
Even though this thread was added back in September 2006 it offers a very interesting timeline with regards to Spanish tax laws and in particular the complicated issue of capital gains tax if you are looking to cash in an investment.
The initial comments in 2006 seem to have alarmed many with the original poster citing the fact they had been advised they would need to pay capital gains tax of 35% on the value of their property. It is unclear as to whether the poster thought this was 35% of the total value, or just 35% of the profit, but it has opened up a useful debate on overseas taxation issues.
In 2006 the capital gains tax rate in Spain for non-residents was 35%, with 5% of the sale proceeds being held by the authorities immediately upon completion of a sale to stop sellers leaving the country without paying any tax due. While the headline figure of 35% has alarmed many, at worst it is only 35% of the actual profit on the investment – so if you bought a home for £100,000 and sold for £200,000 your liability would be 35% of the £100,000. But this is not the end of the story….
You are also able to add the cost of any investment into the property, e.g. you may have had an extension built or work on some of the rooms (assuming that you have receipts). This will further increase your cost figure and reduce your property cost. After calculating your CGT liability you may have to make an additional payment or if you have no gain you will then be able to claim back the 5% deducted at source. As the thread progresses the law has been updated to show a revised CGT rate of just 18% with only 3% deducted at source.
Summary
If you are investing in foreign lands you need to know the tax situation and what you may have to pay when you sell your property. While tax rates do vary across Europe, the EU is looking to move to a more consensus figure although there is some resistance and this may take some time to conclude.
This post not only acts as a useful thought provoking topic for those with investments in Spain (and other areas of the world) but it also shows how the Spanish tax laws have changed over the years. The post was originally added back in 2006 and has been updated by some of those who responded in the early days. Taxation can be a difficult subject for those who have not investigated this area of finance before and mistakes and misconceptions are common place.
Over the years the internet has taught people how to cut costs and adviser fees but there are some areas where it is very dangerous to cut corners. Taxation is one area where a simple error or miscalculation can literally cost you thousands of pounds and possibly put you in trouble with the authorities. There was a throw away remark about ‘doing a runner’ from Spain after selling the property in question but this would be a very bad idea.
It is vital to ensure that you are fully aware of the tax laws in the area in which you hold or a looking to buy property because there can be some nasty surprises unless you are prepared. Professional advice on the matter may cost you a fair amount of money, but at the end of the day you really have little choice if you want to do things correctly.
As the Marketing Director of currency specialists HiFX, I came across this thread on Spanish CGT and thought the users of your site would be interested in a mass consumer campaign we are behind to help Brits reclaim millions of pounds in unfairly charged CGT.
THE SPANISH GOVERNMENT’S £86 MILLION I.O.U TO BRITS
For those of you who haven’t read the surrounding media buzz this story has created recently, (coverage has included pieces in the Financial Times, Daily Telegraph, Mail on Sunday, Sunday Times, Sun, Express and Independent and others), here’s the story!
Thousands of Britons who have sold a property in Spain between June 2004 and December 2006 could be owed a 20% tax rebate. Initial conservative estimates put the total amount to be reclaimed by British citizens at £11,000 per person – totalling an estimated £37 million. However, over the last three months hundreds of Brits have registered average reclaims of more than £19,300 each – totalling more than an estimated £86 million.
The tax loophole – which was originally exposed by Spanish lawyers, Costa, Alvarez, Manglano & Associates – came about after British non residents paid a Spanish Non Residents’ Capital Gains Tax rate of 35% on property sales, compared to a rate of 15% paid by Spanish nationals. This 20% overpayment not only totals a profit of somewhere in the region of an estimated £86 million, but also contravenes European Community Treaty rules on discrimination and therefore was unduly charged by the Spanish Government. British people applying for a refund are also set to add on missing interest at a compound rate of 6% to their reclaims, meaning payouts could be on average 26 % larger than first thought.
Placing an actual figure on the amount of people affected by this is very difficult, as the Spanish Government understandably does not want to disclose this information. However, as one of the UK’s leading currency specialists, we believe a conservative estimate is in the region of 4,500 British people, plus thousands more residents in other European countries,
Think you’re entitled to make a claim? Don’t delay! People who sold property prior to June 2004 have already missed out, as claims can only be made dating back over a four year period, meaning millions more have become victim to this tax trap.
HiFX, together with the Spanish lawyers are calling for British people to come forward and register their details to be part of what could be the biggest class action against the Spanish tax authorities for many years.
Commenting on the issue, Spanish Lawyer Emilio Alvarez said: “Anyone who has sold a Spanish property between June 2004 and December 2006 will have been victim to this inflated capital gains tax rate, which saw non residents paying inflated CGT bills by as much as 20%. This tax trap is thought to have affected hundreds of thousands of people across Europe and in the UK.
“A change in the law at the start of 2007, which saw the standard Capital Gains Tax for non residents being brought in line – a reduction from 35% to 15% , passed by largely unnoticed. As a result, thousands of people who had previously sold property in Spain are entitled to a 20% rebate, thought to average at £8,000 each. Due to stringent legal restrictions many people who bought in 2004 and before have already missed out, as claimants must register within 4 years, but thousands of Brits can still join forces and fight to get the Spanish tax authorities to pay back the money owed.”
Does this affect you? Visit http://www.spanishtaxreclaim.co.uk to find out more or call the Spanish Tax Reclaim Helpline on 0845 680 3849.
I agree a friend of mine bought in Spain recently and said it is quite different. He also said you have to be careful where your property is built in respect of the land it is built on. Sometimes builders don't even have permission to use the land and your house can be taken away and knocked down in some parts of the EU