Renting out your only property and incurring CGT even if you're over 65 - Page 2

Hi Sue,

What happened re this? Did you return to the UK. I also found out similar situation, had a property I lived in with my wife for years and we use to rent during the summer months for a few years, we sold the property in 2018 as well, we are now being chased for taxes!?

No, the plan was never to return to the UK.  We bought another house here.  We had to pay the capital gains tax and so will you. The Spanish tax authorities are legally allowed to come after you and claim it wherever you live (many in England and other countries have had to).  If you don't pay within the time they give you, then you will be fined, as well as incurring all the other rising costs I advised.  It's interesting that you sold in 2018 as we did but we were advised they were working four years back so would get our notification demand in 2022.  They must need the money!  Your gestoria should have advised you when you sold and prepared your 2019 tax return appropriately as ours did.  Suggest you pay it now or the debt will be mounting at an alarming rate.  You have no defence.  And another point of interest.  Horribly, the same rule (giving up your rights to Habitual Residence relief if you rented out without a three year gap if one of you dies.  We were quoted the difference of having to pay 16,000e and 3,000e.  Good job you returned to the UK in that regard!  

Best wishes.  Sue.  

Hi Sue

what an epic story, and although we have never rented our 2nd home in Spain out (thank goodness) I picked up many interresting facts. Although you never mentioned the sum you had to pay, I was astounded at the sum your gestors mother was billed for and surely the gestor should have advised her better. That bill of 30,000€ if she had used all her sale money to buy a Uk house would be impossible to find.

When the time comes to sell our own property in Spain (staying as non resident) I always felt we would only pay CGT if we were lucky to make a profit, given most friends selling recently all made losses. What I never knew was the information from Davebev1 that it would be subject to the fluctuation in exchange values also. Thats really hard to accept, obviously CGT is applicable as UK tax payer on selling second property but thats very sneaky of Uk IR to use the exchange rate to gain money as effectively no profit in euros happenned. Ouch!  Its posts like these that are very much welcomed (by most ) as not everyone is as "learned" as some helpful members. We were stung on day of completion when the price in the deeds were reduced by 30,000€ and later handed it as black cash. Unscrupulous solicitor told us we,d save money on purchase tax and it was a pro for us. Huh!! Despite values reducing badly since buying in 2006 we still will get hammered for CGT and now Uk CGT. I hope this has become a distant bad experience which your rental income covered, but seems people like us who never rented out, will be hammered twice over with nothing to compensate for it and even if no profit is made in Spain will still pay Uk tax on the sale.

Enjoy the rest of your life in Spain.

Regards

Pauline

Hello, Pauline.  Thanks for this.  It's ironic, really.  The lady who returned to the UK and had to pay the £30,000 was our gestor's own mother!  She wasn't aware of this CGT/rental ruling at the time and only found out from her mum when she got the demand letter there.  Luckily, this is why she knew about it and calculated ours and advised us to pay it.  She also took her mum's case to court here in Spain and lost because it is legal.  At the time I was querying this law, I contacted six solicitors here (some British some Spanish) and only one knew about it.  None of our friends did and were appalled because they too had been renting during the summer months and were thinking of selling.  

Your own story is not unusual or unknown to me.  You can't win - either here or there (or probably anywhere).  What do they say, only two certainties in life:  death and taxes?

Best regards.  Sue.  

Hi Sue, I missed this thread the first time round. Thanks for taking the time to post this warning.

I agree with what Ray has said. If a property is rented out, even part-time, then it obviously isn't a habitual residence for the owner.

Agencia Tributaria are well within their rights to classify a property which is rented out as a source of income, and thus allocate to it a fiscal value higher than that of a residential property, affecting the amount of CGT applicable on its sale.

This has been the case for many years, and if the fiscal advisers and lawyers you have consulted don't know the facts, then they're in no position to advise people.

No-body's disagreeing with anybody and especially the law.  It's just that people need to know so that, ironically, they can advise the professionals as there was/is obviously a need! 

I hope this pleases you to hear;

The EU are taking Spain to court over the fines relating to form 720, as they consider it unfair and disproportionate;

https://www.spanishpropertyinsight.com/2020/01/14/requirements-and-obligations-modelo-720-tax-form-spain/

On the CGT issue , as a non resident one pays just 3% cgt on a sale and that’s it. The problem arises of more cgt when one is a resident. Unsure if that applies if you stay less than 183 days in s year or not though.

I think it is grossly unfair to change the classification of a property for just a few rentals in any one year, although one is subject to CGT in the uk on second homes that give an income and is regarded as a business. 

It would appear the chambers are expert in the tax field and only brought the case recently to the EU court in Dec 2019. To bring such a case is extremely expensive and over 200,000 Euros as a starting point in my opinion, though probably a class action and insurable. Unless they saw they had  a 70% chance of success they would not have brought the case in the first instance.

If successful then it does help the public generally and they should be applauded for their work.

Not sure why the subject of Modelo 720 has arisen.  We are permanent residents here and have been for 20 years with no assets at all in UK.    BTW - the EU has been taking Spain to court in regard to the fines for about five years to my knowledge!