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Renting out your only property and incurring CGT even if you're over 65

Posted: Wed Jun 26, 2019 8:46pm
19 replies906 views11 members subscribed
SusanFrost

Posts: 50

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Location: Moraira

Joined: 30 Aug 2018

People should be warned!  

If you rent out your only property in Spain (or England) during the summer months - or at any time even for one week - declare rental income and pay tax, when you sell you will be charged Capital Gains Tax as the tax office consider you've changed your property's designation/classification from Primary/Habitual Residence.  

Our fiscal advisor's mother has just got a bill for almost 30,000e.  She rented out during the summer months to supplement her pension.  Paid the taxes as above.  Sold in 2014 (the Hacienda can only go back three years so are currently trawling through the sold/rental tax records for that year).  She received The Letter at her new address in England stating that she owed CGT.  Her daughter took it to court and lost.  

We know people who have rented their properties here for many, many years and not declared or paid a euro in tax.  They've made a fortune when they sell they will be under the radar and therefore there will be no CGT to pay.  A lot of older people having owned their properties for many years and made a decent profit, but rented out at some stage, and want to go back to UK have no idea of this CGT loophole Spain are exploiting.

This has just happened to us.  We bought in 2000 and sold in 2018.  We reinvested a lot of the profit we made in another house.  Had we not and just returned to England (as we'd planned), bought another little property there, we would have got The Letter in 2022/23 demanding we pay CGT, back interest and the fine.  Horrendous!  So the bottom line is - do you declare rental income and pay CGT when you sell?  Or do you not declare and face fines of up to 90,000e for non-disclosure?  Seems to us now that it doesn't pay to be honest as you'll probably never be caught if you don't declare.  All the lawyers/tax experts we've contacted for clarification/confirmation aren't aware but all have advised us to pay up which we have to do tomorrow.  

We are upset and angry and now plan to sell and return to England.

  

MeathMaria

Posted: Wed Jun 26, 2019 9:08pm

MeathMaria

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Posted: Wed Jun 26, 2019 9:08pm

Sorry to hear such a sad story.   Awful to receive such a shock after all that time.  Very upsetting at any age.  

Could you clarify something?  You said that the property was sold in 2014.  So is it 3 years that the hacienda go back or 5?  

Is there any way for you to continue to remember all the reasons why you enjoy living in Spain and reconsider staying.  Take some time out, then make a list of major pro and cons.  Good luck. 

Best wishes. 

SusanFrost

Posted: Thu Jun 27, 2019 10:41am

SusanFrost

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Posted: Thu Jun 27, 2019 10:41am

It's isn't rather obvious, Ray, and that's why people are in shock when they get The Letter either here or back in England.  Of course, we all know that one pays CGT if a profit is made and you're under 65.  It's not a question of long term rental.  Just a few weeks in July and August to holiday makers which changes the property's classification,  However you look at it, it is the primary/habitual residence.  Just the same as if you go away on holiday or let friends/family stay in the house - the only difference is that you're receiving income for which you pay the appropriate tax.  As we did.  It is a 'loophole' and has been described as such by more than one lawyer/tax expert we've consulted for advice.  We were also told that the same 'law' (ha!) would apply if you were hospitalised and spent time away from your property.

I would respectfully ask that you read my originally input again.  Nowhere have I advised people not to declare and pay tax.  I have said that I understand why so many people don't and go under the radar.  You seem to have missed the point.  By being honest we have shot ourselves in the foot.

No need to remind us about PlusValia.  We know what we paid.  We fully realise that if tax is due it must be paid and would never try to avoid it.  However, this CGT for purely summer rental is a scam and people need to be aware.  Hopefully, it will go the same way as the obscene 720!  Another try-on by Spain.

SusanFrost

Posted: Thu Jun 27, 2019 3:00pm

SusanFrost

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Posted: Thu Jun 27, 2019 3:00pm

Thank you for your message and the empathy you showed towards our situation.  So different from the other response.

I can only tell you that our gestor's mother got The Letter in England after she sold her house in 2014.  As did the other people who sold in that year and either stayed here or returned to UK.  All were completely unaware of this loophole which it seems Spain has suddenly decided to take advantage of.  As we sold in 2018, I assume we would be getting The Letter in 2022/23.  Something I forgot to mention is that our gestor took her mother's case to court last year and lost.  The law states that to avoid CGT, your primary/habitual residence must be rental free for three whole years before it's sold.  And I'm talking summer holiday rentals here (as well as longterm, of course).  

At my ladies' group yesterday afternoon, I explained what had happened to us and three of the ladies there went into panic mode as they have rented , declared, paid tax and have their houses on the market (all three have renters in at the moment and will do throughout August).  Another two were considering renting for the first time next year and now won't as, like us, they are honest citizens and would want to abide by the law so would have declared and paid the tax.  

If this tax has to be paid, then so be it.  But it's typical of the Hacienda not to make it known as it means more revenue not only in the payment of CGT but in back interest and huge fines.  

I wish you health and happiness in your life in Spain.  Will we go back?  Definitely!

We do appreciate our life here (my sister who lives in Surrey just wrote that they had to have the central heating on during the recent two weeks of rain and cold), but we so regret not going back and buying another property here.  I just want fields, grass, rivers, thatched cottages, duck ponds, cows, bluebells, woods, country pubs, stately homes, museums, cinemas, theatres, English country gardens, garden centres, all-in-one supermarkets, old churches and M&S knickers!  I know the minuses of life back home but want to give it a try again as, at our age, there's more behind than in front.

Thank you again for your kind words.    

  

SusanFrost

Posted: Thu Jun 27, 2019 5:53pm

SusanFrost

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Posted: Thu Jun 27, 2019 5:53pm

May I suggest you get off your podium.  We have now consulted a dozen lawyers and tax experts.  None of them are aware of this loophole (their word not ours).  There is nothing in your post that we didn't know.  What we do know is that people aren't aware of this and we want to get it out there so they do.  No need for another response.

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MeathMaria

Posted: Thu Jun 27, 2019 7:19pm

MeathMaria

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Posted: Thu Jun 27, 2019 7:19pm

SusanFrost wrote on Thu Jun 27, 2019 3:00pm:

Thank you for your message and the empathy you showed towards our situation.  So different from the other response.

I can only tell you that our gestor's mother got The Letter in England after she sold her house in 2014.  As did the other people who sold in that year and either stayed here or returned to UK.  All were completely unaware of this loophole which it seems Spain has suddenly decided to ta...

...ke advantage of.  As we sold in 2018, I assume we would be getting The Letter in 2022/23.  Something I forgot to mention is that our gestor took her mother's case to court last year and lost.  The law states that to avoid CGT, your primary/habitual residence must be rental free for three whole years before it's sold.  And I'm talking summer holiday rentals here (as well as longterm, of course).  

At my ladies' group yesterday afternoon, I explained what had happened to us and three of the ladies there went into panic mode as they have rented , declared, paid tax and have their houses on the market (all three have renters in at the moment and will do throughout August).  Another two were considering renting for the first time next year and now won't as, like us, they are honest citizens and would want to abide by the law so would have declared and paid the tax.  

If this tax has to be paid, then so be it.  But it's typical of the Hacienda not to make it known as it means more revenue not only in the payment of CGT but in back interest and huge fines.  

I wish you health and happiness in your life in Spain.  Will we go back?  Definitely!

We do appreciate our life here (my sister who lives in Surrey just wrote that they had to have the central heating on during the recent two weeks of rain and cold), but we so regret not going back and buying another property here.  I just want fields, grass, rivers, thatched cottages, duck ponds, cows, bluebells, woods, country pubs, stately homes, museums, cinemas, theatres, English country gardens, garden centres, all-in-one supermarkets, old churches and M&S knickers!  I know the minuses of life back home but want to give it a try again as, at our age, there's more behind than in front.

Thank you again for your kind words.    

  

Thank you too!

Yes we girls miss those M&S knickers hahaha 

Good luck 

Davebev1

Posted: Fri Jun 28, 2019 2:48pm

Davebev1

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Posted: Fri Jun 28, 2019 2:48pm

Here's another fact regarding CGT that a lot of people do not understand.  If you sell your Spanish property and it is not (in the strictest legal sense) your habitual residence then you may not just be liable for Spanish CGT but also British CGT.  If you are a UK tax resident (as opposed to a Spanish tax resident) then they will calculate how much CGT you owe in the UK as well.  As we have a dual tax agreement the Spanish tax paid will be off-set against the due UK tax BUT the Uk tax is calculated on the change in the sterling value of the property.  So if you purchased when the exchange rate was much higher and you spent €145,000 on your property in say 2006 it would have cost very roughly £100,000, but sold today at €145,000 it would be roughly equal to £130,000 due to changes in the exchange rate.  So in euros you haven't made a cent (so no CGT due), but on paper the sterling value means you would have made £30,000 and are now liable for CGT on that amount (less any allowable deductions for capital expenditure).  Tax can be confusing so please do your best to use an honest and knowledgeable fiscal rep in both countries.

SusanFrost

Posted: Fri Jun 28, 2019 5:21pm

SusanFrost

Original Poster

Posts: 50

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Location: Moraira

Joined: 30 Aug 2018

Posted: Fri Jun 28, 2019 5:21pm

Thank you for this, Dave.  Very clearly explained .  Although not relevant to us as we are solely Spanish tax residents I'm sure it will be of interest and help to many people who could find themselves having to pay British CGT too.  Forewarned is forearmed.

SusanFrost

Posted: Fri Jun 28, 2019 5:26pm

SusanFrost

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Posts: 50

5 helpful points

Location: Moraira

Joined: 30 Aug 2018

Posted: Fri Jun 28, 2019 5:26pm

Thank you for this, Dave.  Very clearly explained .  Although not relevant to us as we are solely Spanish tax residents, I'm sure it will be of interest and help to many people who could find themselves having to pay British CGT too.  Forewarned is forearmed.

Jan06

Posted: Fri Jun 28, 2019 10:01pm

Jan06

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Posted: Fri Jun 28, 2019 10:01pm

Excuse my ignorance but would you not pay capital gains tax from the inland revenue if you were a UK resident and sold you second home which then made a capital gain when it was sold?

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