# Capital Gains Tax



## Abby6354 (Oct 17, 2013)

We are aged 60 & 59 and have been resident in Spain since 1999 (5 years). We are tax resident in Spain and sold our UK home in Oct 2013 having owned the property since 1988. Prior to that we rented the property and paid tax on the income in the UK and then in Spain when World Wide assets came into force. We submitted our UK tax returns and our accountant included the sale of our house, after receiving the allowances our tax liability was 4025 each but then they applied the Entrepreneur Lifetime allowance of 500o each so result we paid Capital Gains Tax (CGT) of Zero. When we went to or accountant to complete our Spanish Tax return we were shocked when he told us we were also liable for Spanish CGT and this would be on profit of the difference between the purchase price and the selling price less the deductions and allowances and not on the Profit. The amount he calculated approximately was €19000.
Given that our profit after paying off our mortgage was a little over £50k we were astounded. Any advise on how we can reduce this liability would be appreciated. Ie can you deduct home improvements etc etc. we do have an appointment next week with a lawyer to see what can be done but any advise would be nice. PS Our accountant said any deductions we apply we would have to have the receipts. Who keeps receipts for 25 years!!!!


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## Aron (Apr 30, 2013)

I think the lawyer's advice would be best in the first instance. As for receipts, we bought our house in Spain 12 years ago and still have the receipts for improvements!


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## Abby6354 (Oct 17, 2013)

Thanks Aron,

Yes lawyer advice would be best but there are some very informed people on this forum some not so informed but you pick the bits you need. Agree with receipts in Spain as you need when you sell. 25 years ago never thought I would need receipts to defend sale of UK house in Spain.


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## gus-lopez (Jan 4, 2010)

I think you need another accountant. It is complicated but originally it was purchased before 1994 when cgt changed & from 1988, when you purchased , to 1994 There is an allowance of, I believe, 11,1% per year .Therefore the sale price would have already reduced by 66,6% . Then subtract the price paid & mortgage & any allowances. & the amount to pay wouldn't be too much. 
Where he gets 19k from ,I've no idea. 
Where's Capn billy when you need him ?


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## Lolito (Aug 25, 2012)

I was in the same boat last month after selling my UK property. HMCR said that as I was a tax resident in Spain, I have to pay CGT here in Spain. It is 27% here (28% in UK).

I thought I would have to pay over 30k euros, but in the end it wasn't that much. 

Long story anyway but you do have allowances, price you bought (in Euros as in TODAY exchange rate plus expenses buying at the time, i.e. solicitors, etc. all in Euros). Price of selling minus expenses paid in the process of selling (in Euros). 

The result of that amount, take 21% of the first 6,000, then 25% till 18,000 and 27% for the rest until you make up the difference of the profit. 

Then for every year you owned the house, you get a discount, however, as you bought it before 1994, the 'coeficiente' to work out is 1.3299 (as of today). 

So in the end, you won't have to pay a lot. A 'gestor' will do that for you in 2 minutes.


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## StewartL (Sep 5, 2013)

gus is totally correct with the dates and figures he gave so this should reduce the tax burden considerably in Spain. 

I would definitely advise making an appointment with a 'gestor' to have the tax properly worked out in Spain.

Lolito also mentioned a good point that the UK treasury does not currently charge GCT on non-residents so I am surprised your UK account put this on your UK Tax return. However that said at least the effect was still no UK tax payable. The UK treasury following the 2013 Autumn statement has started a consultation review and it looks like they are going to charge CGT on non-residents from 2015. (https://www.gov.uk/government/uploa...data/file/298759/CGT_non-residents_condoc.pdf)


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## Abby6354 (Oct 17, 2013)

gus-lopez said:


> I think you need another accountant. It is complicated but originally it was purchased before 1994 when cgt changed & from 1988, when you purchased , to 1994 There is an allowance of, I believe, 11,1% per year .Therefore the sale price would have already reduced by 66,6% . Then subtract the price paid & mortgage & any allowances. & the amount to pay wouldn't be too much.
> Where he gets 19k from ,I've no idea.
> Where's Capn billy when you need him ?


Did think we need to maybe ditch the accountant however in the past he has been very good. Interested that you say can deducted mortgage our accountant say we can not which seemed strange to us. Are you sure on this?
Anyway thanks for taking time to reply much appreciated.


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## Chopera (Apr 22, 2013)

Lolito said:


> ...
> Then for every year you owned the house, you get a discount, however, as you bought it before 1994, the 'coeficiente' to work out is 1.3299 (as of today).
> ...


Any idea what this coefficient is?

I've got a property I bought in 2000 so I'd be interested to know what it's effect would be over those years. I never planned on selling it but as StewartL has mentioned, I might now be better off selling before 2015 when the UK is due to introduce a tax on property sold by non-residents.


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## gus-lopez (Jan 4, 2010)

Abby6354 said:


> Did think we need to maybe ditch the accountant however in the past he has been very good. Interested that you say can deducted mortgage our accountant say we can not which seemed strange to us. Are you sure on this?
> Anyway thanks for taking time to reply much appreciated.


Yes, of course you can deduct it. Why he thinks you can't baffles me?
Imagine originally the house was 100k. You have 20k . You cannot afford to buy it.
You get a mortgage for the rest. 5 years later you sell for 200k.
He is saying you deduct your 20k , leaving 180k, knock off any expenses & pay tax on this balance. That is absolute nonsense, you'd be paying cgt on money lent to you by the bank/building soc.!!

What you do is sell for 200k, deduct the mortgage ( whatever it has reduced to say 70k) ; then deduct your original deposit of 20k . This leaves 110k as theoretical profit. From this you can deduct all expenses for purchasing it originally that you haven't already claimed ( & being UK you wouldn't have claimed any thing already,probably ) .I.E. Estate agents ; solicitor; etc; Additionally he is correct in that you can claim for any improvements, repairs etc ;but theoretically they will want receipts. 
You can claim alll & every expense of keeping property safe & in good order ;I.E. house insurance; mortgage protection insurance;etc;
On top of this you can also reduce it by all the expenses , solicitor, estate agent, etc; of selling as you are not using the money to buy another.
They do not ask for receipts/invoices to be included when making a claim but would expect them to be available if there is a dispute.

If you had owned the property for 10 years by 1994 the yearly allowance would have meant that you would have nothing to pay whatsoever.
As I said before the amount has already reduced by over 60% due to owning it before 1994. What yopy should have to pay is negligible ,if anything.
Do not let anyone tell you that all/any of the above do not apply as the property is abroad.


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## Chopera (Apr 22, 2013)

gus-lopez said:


> Yes, of course you can deduct it. Why he thinks you can't baffles me?
> Imagine originally the house was 100k. You have 20k . You cannot afford to buy it.
> You get a mortgage for the rest. 5 years later you sell for 200k.
> He is saying you deduct your 20k , leaving 180k, knock off any expenses & pay tax on this balance. That is absolute nonsense, you'd be paying cgt on money lent to you by the bank/building soc.!!
> ...


Well in the UK I'm pretty sure that the outstanding mortgage is not deductible against CGT. If you buy a property for a 100k and sell it for 200k then you pay CGT on the 100k profit regardless of any mortgages you took out (there may be other deductibles of course). Other wise everyone would be taking out huge interest only mortgages to reduce their CGT bill. I'd be quite surprised if Spain was any different on this matter.


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## Abby6354 (Oct 17, 2013)

Chopera said:


> Well in the UK I'm pretty sure that the outstanding mortgage is not deductible against CGT. If you buy a property for a 100k and sell it for 200k then you pay CGT on the 100k profit regardless of any mortgages you took out (there may be other deductibles of course). Other wise everyone would be taking out huge interest only mortgages to reduce their CGT bill. I'd be quite surprised if Spain was any different on this matter.


Yes you are correct you are not allowed to deduct any mortgage against CGT in the UK. You are allowed various deduction which are more generous than the Spainsh deductions. Our accountant has talked with the Spanish tax authority and they have confirmed that mortgages are not an allowable deduction for exactly the reason you say everyone would be taking out interest free mortgages yo reduce CGT and would have the profit from the sale with little tax liability.


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## gus-lopez (Jan 4, 2010)

Chopera said:


> Well in the UK I'm pretty sure that the outstanding mortgage is not deductible against CGT. If you buy a property for a 100k and sell it for 200k then you pay CGT on the 100k profit regardless of any mortgages you took out (there may be other deductibles of course). Other wise everyone would be taking out huge interest only mortgages to reduce their CGT bill. I'd be quite surprised if Spain was any different on this matter.


Which is what I said.
I think we are getting confused here. In your example , buy for 100k , sell for 200k pay cgt on the 100k profit . correct ? . You have deducted the mortgage that you had on the 1st 100k. If you don't deduct the mortgage you would be paying cgt on 100k + the mortgage.

It is exactly what I'm saying except it appears I've badly worded it. I'm not saying 
buy for 100k with an 80k mortgage, sell for 200k & deduct the mortgage from the 100k profit. The mortgage is included in the original purchase price.


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## Chopera (Apr 22, 2013)

gus-lopez said:


> Which is what I said.
> I think we are getting confused here. In your example , buy for 100k , sell for 200k pay cgt on the 100k profit . correct ? .* You have deducted the mortgage that you had on the 1st 100k. If you don't deduct the mortgage you would be paying cgt on 100k + the mortgage.*
> 
> It is exactly what I'm saying except it appears I've badly worded it. I'm not saying
> buy for 100k with an 80k mortgage, sell for 200k & deduct the mortgage from the 100k profit. The mortgage is included in the original purchase price.


The bit in bold is very confusing. You don't deduct the mortgage at any point. It makes no difference whether you buy a house for 100k with an 80k mortgage, a 40k mortgage or in cash. The purchase price is still 100k (not 100k + the mortgage), and as you say the profit is the difference between the sell price and the purchase price.


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## gus-lopez (Jan 4, 2010)

Yes . just different ways of looking at it.
Anyway if the OP said that the profit is barely 50k then no way would the cgt be 19k.
As Lolito said I wouldn't expect to pay anything.


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