No 2 year roll over for buying outside Spain

[Bongtrees]

Was thinking of selling my main home in Spain and relocating to another EU country but have now been told that I will be classed as non-resident the minute I move out of Spain and I cannot have the 2 year roll over period and thus become liable for CGT.

Is this true?

[El Cid]

As I understand it, you have to be Spanish tax resident at the time you buy the new property.

In Spain, if you meet the 183 day criteria you are tax resident for the whole of that year.

Clearly timing is of the essence in this case. However, so long as you are tax resident when you sell the Spanish property, you will not have to pay the tax so long as you declare on your tax declaration that you intend to reinvest the money within 2 years.

If within that two years you don't submit a return showing that you have reinvested the money then you are in the same position as someone who paid the 3% retention but still owes some CGT - they will have to chase you for it and then you can start arguing about whether you qualify or not.


Sid

[DavidSearl]

FROM DAVID SEARL

FOR BONGTREES

Yes, it is true. The "rollover" exemption from Spanish capital gains tax when you sell your principal residence in Spain applies only when you purchase a new principal residence in Spain within two years of the sale.

Good luck with it, David Searl

[Bongtrees]

I wonder whether this requirement to be Spanish tax resident is enforceable. I have just read elsewhere that Portugal used to have the same rule but the EU ruled that this was contrary to the principle of the freedom of movement and in 2009 Portugal was forced change its tax code to allow reinvestment in other EU countries.

Surely this rule should apply to Spain?

[El Cid]

Surely this rule should apply to Spain?

According to Blevins Franks it does apply.

There is nothing in the current tax manual that says it doesn't apply so long as the new house really is your habitual residence. By definition, if it is your habitual residence, you would no longer be tax resident in Spain.

I would just tick the box on the form and argue about it two years later - or go and talk to Blevins Franks.

Sid

[Bongtrees]

Thanks for the information Sid.
If there is nothing in the tax manual I dont understand why some people are saying the rollover is only for purchases within Spain.
It is all very worrying and confusing especially when there is such a large sum of money involved it could mean the difference of accepting an offer or not in some cases.

[DavidSearl]

FROM DAVID SEARL

FOR BONGTREE

First, I pinch myself to remember that the exemption from Spanish capital gains tax for the purchase of a new principal residence in Spain now runs for three years, not two years.

Second, the excellent post referring to the case of Portugal, where a similar law was knocked down by the EU, is relevant. The same thing happened in Sweden also.

However, the EU ruling does not automatically apply to other countries. Spanish law remains unchanged. The seller must buy a new principal residence in Spain within three years to obtain exemption. The first person to challenge this Spanish law before the EU will win his case. This could be you.

Good luck with it, David Searl

[Jool]

What would happen if you sold at age 62, did not buy again within the 3 years but reached 65 before the 3 years were up? Would you then be exempt on basis of retirement age?

[julian]

the "3 years" is hardly relevant now with 2012 being only 2 years away.

[El Cid]

What would happen if you sold at age 62, did not buy again within the 3 years but reached 65 before the 3 years were up? Would you then be exempt on basis of retirement age?

Nice idea but no, it would be the age at the date of the sale.

Sid

[Beachcomber]

Surely there is no need for anyone to go to the expense of instituting a challenge of this law. As Sid said earlier on, if the seller has sold up and moved to another country the Spanish tax authorities would need to pursue him there for the alleged non-payment of the CGT, a move which would be very likely to fall at the first hurdle especially if he has already bought his property there.

I suppose they could apprehend him should he be unwise enough to return to Spain for any reason but this would result in the country becoming more of a laughing stock in the rest of Europe than its hapless prime minister has already made it.

[Bongtrees]

FROM DAVID SEARL FOR BONGTREES

the excellent post referring to the case of Portugal, where a similar law was knocked down by the EU, is relevant. The same thing happened in Sweden also.
However,. Spanish law remains unchanged. The seller must buy a new principal residence in Spain within three years to obtain exemption. The first person to challenge this Spanish law before the EU will win his case. This could be you.

My brain froze when I read the EU ruling does not automatically apply to other countries

If it applies to Portugal it applies to Spain and as far as Im concerned there is nobody on this planet who can force me to buy another principal residence where I dont want it.

As for engaging a lawyer or barrister to do anything.....I would rather take my chances on my own.

[Beachcomber]

I'm with you, Bongtrees. I don't know if I shall ever be in the position of selling up in Spain and returning to the UK but, in this unlikely event, I certainly will not be paying Spanish CGT just because I have failed to purchase another property in Spain within the stipulated time limit.

[Mowser]

As mentioned previously, "The EU ruled that this was contrary to the principle of the freedom of movement and in 2009 Portugal was forced change its tax code to allow reinvestment in other EU countries."

The final part of the decision states:

On those grounds, the Court (Second Chamber) hereby:

1. Declares that, by maintaining in force fiscal provisions, such as Article 10(5) of the Personal Income Tax Code, making entitlement to exemption from tax on capital gains arising from the transfer for valuable consideration of real property intended for the taxable person’s own and permanent residence or for that of a member of his family subject to the condition that the gains realised should be reinvested in the purchase of real property situated in Portuguese territory, the Portuguese Republic has failed to fulfil its obligations under Articles 18 EC, 39 EC and 43 EC, and under Articles 28 and 31 of the European Economic Area Agreement of 2 May 1992;

2. Orders the Portuguese Republic to pay the costs.

A fuller explanation is here:-

http://curia.europa.eu/jurisp/cgi-bin/g ... ance=ARRET

[scampicat]

At some time we will sell up and use the proceeds to buy a place in the UK. This is great news, if it applies to Spain too, although we may well be over 65 anyway by the time it happens.

Roll on Spain following EU law! (what's that pink fat oinking thing flying past the window?)

[El Cid]

As I said before, it's simple - just claim you are going to buy a new property within the timescale and let them chase you for it later. If they do, quote the EU ruling.

Sid