How to Avoid CGT in Spain - Taxes in Rojales: Suma, NIE and general tax advice - Rojales forum - Costa Blanca forum in the Alicante province of Spain
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How to Avoid CGT in Spain

marcliffPosted by marcliff on Mon Apr 24, 2023 5:56pm in Taxes
62 replies8303 views13 members subscribed

A couple have asked what I meant about selling in the second half of the year to avoid CGT. Hope this helps.

Capital Gains Tax is payable when you sell your property in Spain whether you are a resident or a non resident. If a non-resident you will pay a 3% retention tax on selling your property and this will be used to pay any CGT that is due. There is a fixed rate of 19% for non residents from a EU country and 24% from a non EU country. Expenses cannot be claimed to offset against the tax and nor can you claim the exemption if you are using all the profit from the sale on a new property as this is only valid if it is your main home and you cannot claim that if you are non resident.

However, for residents there are several ways to avoid this tax.

Firstly, if you are going to become resident in Spain and have a property in UK to sell, ensure you look at the time of year when you sell your UK property. You will be liable for CGT on your UK property if you sell in the year you become resident.

You cannot be classed as a fiscal resident until you have been in Spain for a period of 6 months or more in any one calendar year which is the same as the tax year in Spain. If you become a resident in Spain in the second half of the year then you will not have to declare the sale of your UK property in that year. But if you become resident in the first half of the year then any UK sale will be liable to CGT. 

Example. Become resident in (say) March 2024 then you become a tax resident for 2024 and will have to declare income for the whole of 2024 including the sale of a UK property. This can be quite expensive especially with the UK property prices rising so much. You will complete a tax return in 2025 for all income received in the year 2024.

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However, if you become resident in (say) October 2024, you will not be a tax resident for that year (Spain does not do partial year fiscal residency) so any sale of UK property in that year will not need to be declared. You will not become a fiscal (tax paying) resident until the year 2025 when you will have been resident for more than 6 months in one calendar year. You will not have to complete your first tax return until 2026 which will take into account all income received in the year 2025. So If you sell your property in 2024 you will not need to declare it even though you become resident (but not tax resident) in 2024.

Each autonomous region has its own rules on CGT so I will concentrate on the Valencia Region.

If you sell your main home in Spain and use all the profit made to buy another property anywhere in the EEA (but not UK) then you will not be liable to CGT as long as the new property is going to be your main home. If you only use the money you received  and some of the profit on the new main home then the percentage you used will decrease the CGT by that amount.

Example. Sell a property for 200,000 and make 50,000 euro profit and then buy a new main home for more than 250,000 euro then you won't pay CGT. However, if your new main home is only 225,000 then you will pay CGT on the surplus 25,000 euro. As a resident, you can claim expenses you have incurred in the sale off that amount. Expenses that can be claimed are ITP (transmission tax) Legal Fees, VAT if a new home, notary and legal fees plus the VAT on those charges. These exemptions are applicable for up to 2 years after selling your original property. but you have had to have lived there for more than 3 years for the original property to be classed as your habitual resident. (Additional note) I have clarified that it is the entire proceeds you must invest in a new home to get the main home exemption and not simply the profit you make on selling.

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Now for the oldies amongst us. If you are over 65 and have been living in your main residence for more than 3 years then there is no CGT to pay regardless of if you buy a new property or not.

One point to bring up. A Valencia Court ruling has said that if you update your property value by the CPI (inflation rate) since you bought it, you can use that value instead of the price you paid for it. They ruled that increases in property prices means you can't buy a new one for a similar price. Say you bought 5 years ago at 100,000 euro. The inflation rate in those years has risen by 10% (an example figure) then you can use that and claim the property would have been bought for 110,000 and any profit would be above that figure, not the 100,000 you originally paid. Of course, in some cases the value has come down so you wouldn't want to use that figure but you will have the choice.

(The above paragraph has been sent back for scrutiny by the Valencia Regional government and the inflation ruling is being looked at by the Valencia Supreme Court so don't rely on that until it has been clarified).

There are ways to avoid some of the tax such as "confiscatory taxation". If, for example, the profit you have made comes to around 10,000 and the tax to be paid comes to over 8,000 euro then that is classed as confiscatory so no tax will be due,

As in everything, always consult a solicitor to check on your allowances. Some of them will give the first consultation free if you use them for the sale so always best to check.


Written by

marcliff

marcliff

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Darro

Posted: Mon Apr 24, 2023 9:38pm

Darro

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Posted: Mon Apr 24, 2023 9:38pm

Under the post Brexit visa arrangements I believe you are tax resident from the time you acquire residency whenever that is in the tax year, am I mistaken?

marcliff

Posted: Mon Apr 24, 2023 10:02pm

marcliff

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Posted: Mon Apr 24, 2023 10:02pm

You become resident in Spain as soon as you take out residency but you do not become a fiscal resident until you spend more than 183 days in one calendar year in Spain. Two different things. You remain a tax resident in UK until you have completed those 183 days.

You do not need to submit a tax return for the year if you have been a resident for less than 183 days in that calendar year. However, if you start work in Spain during the time you are still considered a non resident (with a work permit for example) then you are liable for income tax on income earned in Spain. After that, when you become a fiscal resident, you are taxed on your world wide income. 

Janet63

Posted: Wed Apr 26, 2023 10:10am

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Posted: Wed Apr 26, 2023 10:10am

Thankyou for this very helpful information .You have just answered all my questions 

Bibba

Posted: Wed Apr 26, 2023 3:15pm

Bibba

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Posted: Wed Apr 26, 2023 3:15pm

You do however have to pay property tax and ibi to Spain on any spanish property bought, from purchase date, so if you  buy a property you have to declare the following year for that property, but not for anything outside Spain. If you buy a property in october 2023 you deliver taxform and pay tax in 2024, which will be for 3 months of 2023 - but only for what you have in Spain, namely the property, being a tax/fiscal recident outside EU/EEA. Once you become a tax/fiscal recident all your assets regardless of geography, are taxable in your new country. 

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Kimmy11

Posted: Thu Apr 27, 2023 3:15pm

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Posted: Thu Apr 27, 2023 3:15pm

marcliff wrote on Mon Apr 24, 2023 10:02pm:

You become resident in Spain as soon as you take out residency but you do not become a fiscal resident until you spend more than 183 days in one calendar year in Spain. Two different things. You remain a tax resident in UK until you have completed those 183 days.

You do not need to submit a tax return for the year if you have been a resident for less than 183 days in that calendar year. However, if you start work in Spain during the time you are still considered a non resident (with a work permit for example) then you are liable for income tax on income e...

...arned in Spain. After that, when you become a fiscal resident, you are taxed on your world wide income. 

And it's worth remembering that, because tax residency is different to residency, the 183 days would include any periods spent in Spain in the whole tax year, i.e. January to December.  For example, I have a friend who has just returned to the UK, following a 90 day stay in Spain.  She is in the process of selling her UK property to move permanently to Spain on a Non Lucrative Visa.  She had been hoping to time the sale of her property in order to move to Spain in July or August.  However, if she does so, her recent stay of 90 days, added to the around 5 months remaining of the year once she moves, will make her tax resident in Spain this year.  I have advised her to delay the move until October.

swcoulthurst

Posted: Thu Apr 27, 2023 7:28pm

swcoulthurst

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Posted: Thu Apr 27, 2023 7:28pm

Can you clarify. In my understanding you don't pay CGT on your primary residence if you reinvest the whole 'capital gain' ie the profit, not the whole cost of the sale plus the profit. You surely cannot pay CGT on the original investment as that is not a gain.

marcliff

Posted: Thu Apr 27, 2023 8:23pm

marcliff

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Posted: Thu Apr 27, 2023 8:23pm

swcoulthurst wrote on Thu Apr 27, 2023 7:28pm:

Can you clarify. In my understanding you don't pay CGT on your primary residence if you reinvest the whole 'capital gain' ie the profit, not the whole cost of the sale plus the profit. You surely cannot pay CGT on the original investment as that is not a gain.

According to Abaco solicitors, you must reinvest the total you received when selling the property including the gain. They give an example of the original cost of 200,000 euro and selling it for 225,000 euro. Your new habitual property must be more than the 225,000 you received from the sale to avoid CGT.

If you buy your new home for 175,000 euro then you must pay CGT on the 25,000 euro profit.

However, another solicitor states you must invest all the profit you made so that clouded it a bit. 

I have emailed Abaco for clarification ;pointing this out and will update if they reply.

BCN Solicitors state you must reinvest the proceeds of the sale plus the profit made. 

Either way, you don't pay CGT on the original cost of the property, only on the profit made and remember you can claim lots of expenses back as well.

swcoulthurst

Posted: Thu Apr 27, 2023 8:54pm

swcoulthurst

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Posted: Thu Apr 27, 2023 8:54pm

marcliff wrote on Thu Apr 27, 2023 8:23pm:

According to Abaco solicitors, you must reinvest the total you received when selling the property including the gain. They give an example of the original cost of 200,000 euro and selling it for 225,000 euro. Your new habitual property must be more than the 225,000 you received from the sale to a...

...void CGT.

If you buy your new home for 175,000 euro then you must pay CGT on the 25,000 euro profit.

However, another solicitor states you must invest all the profit you made so that clouded it a bit. 

I have emailed Abaco for clarification ;pointing this out and will update if they reply.

BCN Solicitors state you must reinvest the proceeds of the sale plus the profit made. 

Either way, you don't pay CGT on the original cost of the property, only on the profit made and remember you can claim lots of expenses back as well.

Thats what I understand. You have to invest all the gain to not pay CGT on 'the gain'. After all that is why it is called Capital 'gains' tax. Some of the information given by abaco can be a bit cloudy. It took my wife 2 years to claim back the tax that they incorrectly filed after mis interpreting the dual taxation scheme.

marcliff

Posted: Fri Apr 28, 2023 11:26am

marcliff

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Posted: Fri Apr 28, 2023 11:26am

All the proceeds of the sale must be used on a new habitual property to avoid CGT on the profit if you are under 65. 

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