Capital Gains Tax & Residency

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DesWalker
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Capital Gains Tax & Residency

Postby DesWalker » Wed Mar 22, 2017 12:02 pm

Hi All,

Firstly, my apologies to the moderators here if this question has been answered already. I have searched but cannot find the answer.

I have always understood there to be two forms of Residency.

Firstly the type for when one wishes to spend more than 90 consecutive days in the country but less than 183 days in total in a year. This requires proof of health insurance and financial means but one is not deemed a "tax resident" so that one's total wealth does not need to be disclosed and one is not liable for Spanish Wealth Tax.

The second type is full tax residency for people spending more than 183 days per year in the country. In this case one needs to make a full disclosure of global assets for wealth tax purposes.

Hopefully this is a fairly accurate picture of the situation.

Now my question. When selling a property in Spain a distinction is made between Residents and non-Residents. Most notably, if a Resident has owned the property for three years prior to selling and buys another house within two years then the CGT due on the first sale is deferred until the sale of the second property. Nothing similar exists for non-Residents.

Now I am fully expecting that such rollover relief only applies to full blown tax residents (my second type of resident above) but I have never seen it made explicit so am half wondering whether residents of my first type above might also qualify for such CGT relief. It seems very unlikely as the law seems to mention the three year ownership as being one's principal residence, but I just want to be sure....

Many thanks for any replies,

Des

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Re: Capital Gains Tax & Residency

Postby El Cid » Wed Mar 22, 2017 12:45 pm

It's easier to understand if you think about a "habitual residence". This is a property where you live most of the time. A non resident cannot have an Habitual Home in Spain without being a full time resident which means they would be a full tax resident.

So, no, non residents do not get the roll-over relief nor the over 65 complete exemption.

Sid

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Re: Capital Gains Tax & Residency

Postby DesWalker » Wed Mar 22, 2017 12:59 pm

Thanks Sid. So it is as I expected.

Why on earth have they introduced this spurious "Residency" of the first type I mention ? It just adds to confusion so that whenever one sees a point of Spanish law with the word "Resident" in it one is left unsure whether it applies to the first type of residents I mentioned or whether it only applies to the second full-blown type.

It just seems crazy to call the first type (people applying for the basic Residencia because they wish to stay more than 90 days in one visit but do not wish to spend more than 183 days per year requiring moving their tax affairs to Spain) residents at all ??

Thanks again.

Des

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Re: Capital Gains Tax & Residency

Postby elusive » Wed Mar 22, 2017 1:08 pm

The way i see it probably wrong :lol: is that you only apply for residencia after being in spain for 90 days if you intend to live here and have spain as you habitual residency. Many people come here for 4 plus months during the winter for example but as they are basically on a long holiday and are not making spain their home there is no reason to even contemplate getting residencia. So if you are getting your residencia because you are moving here then you are also becoming tax resident aswell.one comes after the other.

No one should have residencia unless they actually live in spain and have your habitual home here. You dont get it just because you come on hols for 95 days. In that case you do nothing and carry on as norm

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Re: Capital Gains Tax & Residency

Postby DesWalker » Wed Mar 22, 2017 2:10 pm

Many thanks elusive. I see your logic and it would seem to make sense.

However, I know of at least one couple who have had Residencia (the over 90 day type) for years with all the associated travel benefits etc but who are not tax residents because they spend less than 183 days per year in Spain. Maybe I'm wrong but I suspect there might be many more people who fit into this bracket, especially pensioners who do not need to pay for private healthcare in Spain due to the reciprocal agreement with the NHS but who wish to enjoy the benefits of Residencia. For such pensioners there is no downside, the (healthcare) costs are covered, the (travel) benefits can be enjoyed and taxes are still predominantly paid in the UK !! Maybe I'm wrong but I would be interested to hear of similar examples ....

Having two separate dates where one applies for Residency (at 90 days in the first instance and then at 183 days in the second instance) leads to this limbo situation for those who fall between the two stools. And it is the relative merits of purposely applying to be and remain in this limbo situation that I am trying to explore in this thread with regard to CGT and other taxes. Of course if all Spanish taxes are differentiated on the basis of either full residency or no residency then there is no grey area between, but I have never seen it made explicit.

My circumstances dictate that full residency is not an option but that "residency lite" might just be, hence my questions.

Thanks again,

Des

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Re: Capital Gains Tax & Residency

Postby gus » Wed Mar 22, 2017 2:49 pm

What are the "travel" benefits that you mention?

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Re: Capital Gains Tax & Residency

Postby El Cid » Wed Mar 22, 2017 2:51 pm

There is only one form of residency and that is full fiscal residency which you do not apply for. You are deemed to be fiscally (tax) resident once you exceed the 183 days in one year rule.

The "90" day "residency" as many people incorrectly call it is nothing more than a type of visa to enable you to remain in Spain for more than 90 days.

The idea that, just because you are an EU citizen and allowed "free movement" within the EU, does NOT give you the right to stay in one country for more than 90 days. Up to 90 days you have tourist status and don't have to do anything. After 90 days (or before if you know you are going to stay for more than 90 days) you are obliged to register your presence with the police and you will be issued with a certificate which entitles you to reside in Spain for longer than 90 days.

After 5 years of living in Spain, you earn the right to permanently reside by right. If you will to have a document to prove this status, you just register again, using the same form that you initially used to register and you will get an almost identical certificate that includes the word "permanente".

The reason that you can apply to the DWP, if you are a state pensioner, for healthcare, is that this is not conditional with you being tax resident. After 90 days, as I said, you lose your tourist status, and with it your right to use a UK EHIC card. That is why the DWP will then issue you with an S1 form for you to join the Spanish system.They are not concerned whether you are paying tax or not in Spain.

Of course, this system falls down when considering, as Elusive pointed out, the thousand of "winter" expats who usually stay for more than 90 days. In theory they should register and deregister when they return home. Clearly that would be crazy and clog up the system totally, so Spain, with its usual pragmatic approach, doesn't make an issue of it.

As for the tax issue of the many permanent residents who do not pay tax in Spain, that is usually because they, wrongly, assume that because they pay the tax in the UK, that they have no obligation to pay it in Spain. That is clearly incorrect if they are exceeding the 183 day rule, but they are rarely caught out. If they are, the consequences can be expensive. Also, if they sell their house they will not be eligible for the special allowances or exemptions that apply to "proper" residents. The same applies to CGT.

Incidentally, these "residency" rules were not dreamed up by Spain, it is actually EU law. However, it is optional for any member state to have to ask for registration and proof of income/healthcare. Most counties do impose it, the major exception being the UK who chose not to. Now they have got themselves into a huge mess after Brexit as they have no record of the hundreds of thousands of EU citizens who live in the UK. It could take years to sort that out.

When Brexit takes effect (eventually) the rules will probably change and those British expats who have not bothered to register may well find themselves in a difficult situation as they will, overnight, become illegal immigrants. Those of use with the permanent right to reside documentation should have no problems apart from being issued with an actual Residencia ID Card at last!

Sid

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Re: Capital Gains Tax & Residency

Postby elusive » Wed Mar 22, 2017 3:35 pm

However, I know of at least one couple who have had Residencia (the over 90 day type) for years with all the associated travel benefits etc but who are not tax residents because they spend less than 183 days per year in Spain. Maybe I'm wrong but I suspect there might be many more people who fit into this bracket, especially pensioners who do not need to pay for private healthcare in Spain due to the reciprocal agreement with the NHS.

-------------.

I see what you are saying. But this brings up a few issues. Just thinking out loud here. But when you get your S1 you are telling the DWP that you are leaving the uk and will no longer be resident. So by getting the S1 when that isnt the case could that be classed as fraud because the NHS is basically paying for you twice. £3k to your uk dr and 3k to the spanish NHS. Also theres the issue of once you are on the system in spain they know you excist.you may be under the 186? Tax resident issue but if you have residencia and they view spain as your habitual home then if hacienda star sniffing you could be up S/^* creek without a paddle. Its like people want their cake and it eat it. You are either living in spain in a habitual residence centre of economic excistance or whatever they call it or your not and You take the + and - that come with it.re the cgt issue ive read stories of people having to prove tax residency such as showing x amount of years tax returns

Btw have you looked at citizens advice spain for their take on it

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Re: Capital Gains Tax & Residency

Postby Miro » Wed Mar 22, 2017 6:07 pm

gus wrote:What are the "travel" benefits that you mention?


I'd like to know that too!
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DesWalker
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Re: Capital Gains Tax & Residency

Postby DesWalker » Wed Mar 22, 2017 6:50 pm

Thanks to everyone for their replies. It seems clear that for Spanish CGT purposes the resident/non-resident distinction is between fully paid up Spanish tax residents versus everybody else and that any notion that being one of these "90 day residents" allows the tax benefits enjoyed by full residents is a non-starter. It's as I thought but I just wanted to check, and thanks to Sid for explaining it so clearly.

I am in the Canaries. The travel benefits I talk about are the much reduced costs enjoyed by "90 day residents" for the service buses and the ferries between the islands. They may also include reduced flight costs between the islands and reduced ferry costs to the mainland but I don't know of this specifically. Perhaps these benefits are only supposed to be enjoyed by full tax paying residents (makes sense) but it seems that having the 90 day Residencia is sufficient to convince the travel companies to reduce their fares.

The couple which I mention spend two sixty day periods each year in their holiday home down here. That is all. But they applied for the 90 day residency when they first bought their place over ten years ago, they keep it up to date whenever it expires and on the back of it they travel around the islands at a vastly reduced rate to non-Residents.

Sid's point about their healthcare situation is a good one, because I know they don't have any private health insurance and I'm virtually certain they have done none of this S1 form filling to transfer their healthcare to Spain (why would they as they spend most of their time in the UK), so I suspect they just use EHIC cards when down here.

Maybe when it comes to a pensioner applying for the "90 day Residencia" the Spanish authorities do not require sight of any healthcare provision (they most certainly do for those below pension age), thus allowing these people to sort of fall through the crack and get "90 day Residencia" without any healthcare costs, but with all the travel benefits ?

Anyway, I think my questions have been answered. For someone under 65 years old deferring CGT on the sale of a property requires full tax residency for three years, that property to have been one's principal residency for three years, and the purchase of another property within two years. There is no shortcut around these rules.

Thanks again,

Des

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Re: Capital Gains Tax & Residency

Postby Miro » Wed Mar 22, 2017 7:22 pm

The deferral and/or exemption from CGT applies to the sale of your principal residence. So unless you are habitually domiciled in Spain (at said residence) then it wouldn't apply. A holiday home is not your principal residence. Hence you have to be a fully fledged fiscal resident to enjoy that benefit. But surely the same is true in the UK too? i.e. you may be liable for CGT on the sale of a second property that isn't your main residence. Nothing particularly unusual about that.

When we lived in the Balearics, we enjoyed substantial discounts (33% if I recall) on travel by ferry or air between the islands and the mainland, by virtue of being resident in the islands. To prove this we had to be registered on the padrón (local census), and in order to do that we had to first be registered as residents (back then known as residencia, which came with an ID card which had to be renewed after 10 years). Presumably the Canaries operate a similar scheme, but I doubt it has anything to do with one's fiscal status. Bit like free local bus travel for pensioners in the UK. I don't think the bus companies are interested in anyone's tax affairs, only that they live in the area and are over a certain age.

DesWalker wrote:The couple which I mention ... applied for the 90 day residency... they keep it up to date whenever it expires


I think the confusion comes from calling this "residency", which to be fair most people do. It's actually just a registration as a foreign EU citizen, who intends to stay in Spain longer than 90 days. It's not a 90 day residency permit, and I wasn't aware it "expires" as such, so am not sure what you mean by them renewing it regularly.
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Re: Capital Gains Tax & Residency

Postby Miro » Wed Mar 22, 2017 7:39 pm

DesWalker wrote:My circumstances dictate that full residency is not an option but that "residency lite" might just be, hence my questions.


Just read back over this bit and see why you're asking these questions. My take on it is that "full residency" as you call it - i.e. fiscal residency - is not an "option" for anyone - you either are or you're not. Of course, you can choose to arrange your life in a way so as to not become fiscally resident in Spain, but other than that, it's not really an optional thing!
As for "residency lite" - i.e. registering on the foreign EU citizens register, in order to avail yourself of the travel discounts - only you can decide if it's worth the hassle. I can't see it would be worth obtaining an S1 from the NHS (if you're eligible) and transferring your health care to Spain, if you spend more time in the UK. It obviously works for your friends, but I would err on the cautious side: if you own a property, registering may just alert the tax authorities to your potential fiscal residency status (as you're basically registering your intent to stay in Spain more than 90 days - which could potentially become more than 183 days), and they might be more interested in taxing you on your worldwide income than just collecting your non-resident property taxes every year. Probably not, but personally I wouldn't risk it for some discounted bus travel!
Don't worry about what people think, they don't do it very often

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Re: Capital Gains Tax & Residency

Postby elusive » Wed Mar 22, 2017 9:28 pm

registering may just alert the tax authorities to your potential fiscal residency status (as you're basically registering your intent to stay in Spain more than 90 days - which could potentially become more than 183 days), and they might be more interested in taxing you on your worldwide income than just collecting your non-resident property taxes every year. Probably not, but personally I wouldn't risk it for some discounted bus travel!
------------------

Totally agree its a slippery slope. You sign on one thing and that can lead to many other things.

Re the other couple.imo they are comitting fraud. Claiming to be residents to get travel discounts when all they do is come for 2 months twice a year on holiday.

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Re: Capital Gains Tax & Residency

Postby El Cid » Wed Mar 22, 2017 11:28 pm

It cannot be fraud if they produce evidence that they have signed the register and that the relevant people accept that to allow a discount.

It's difficult to see just how a bona fide foreign tax resident would be able to prove their status. It's easy for a Spaniard to produce his DNI but sadly they don't give us a residencia card any more.

Sid

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Re: Capital Gains Tax & Residency

Postby elusive » Thu Mar 23, 2017 9:37 am

If they are claiming to be residents in order to gain something when they arent then to me thats fraud/false declaration. The travel company may except their residency and say heres the discount as they arent going to question it but to me its the actual action of gaining the residency in the first place to gain discounts that was done fraudulently.

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Re: Capital Gains Tax & Residency

Postby El Cid » Thu Mar 23, 2017 11:37 am

You are perfectly entitled to sign on the register (that's not claiming residency) at any time after you arrive in Spain. That merely gives you the right to remain in Spain for more than 90 days if you should wish to.

If someone is prepared to accept a copy of your certificate that is up to them. Incidentally, do you have a certificate that proves you are tax resident?

Sid

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Re: Capital Gains Tax & Residency

Postby gus » Thu Mar 23, 2017 4:15 pm

So, the travel benefits are not for someone who is resident (or not) in Andalucia!

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Re: Capital Gains Tax & Residency

Postby DesWalker » Thu Mar 23, 2017 5:16 pm

Thanks again for all the replies. I think the little discussion at the end sort of shows how there seems to be this grey area whereby pensioners can apply for the 90 day Residencia apparently without needing to prove any healthcare provision thus enjoying the benefits of this Residencia without paying anything in return. This isn't the case for somebody like me who is below pension age as the health insurance costs to qualify for Residencia would more than nullify any small travel benefits (which as far as I am aware are not just limited to pensioners as somebody implies above). But if one of these 90 day Residencia people had also qualified for a big CGT deferral saving too then I might just have been tempted even if it had put me on the radar. But as things stand with the CGT deferral only applying to full blown tax residents then there is no sense in me being on the radar at all.

Indeed, on a similar track I have also wondered about taking out the 90 day Residencia even if it would cost me monthly health insurance if I thought it would offer me preferential treatment post Brexit (should I want to relocate to Spain one day) but I get the impression that any such possible benefit would be so small as not to be worth the associated monthly healthcare insurance costs. I would be interested to hear if anyone disagrees with this premise and thinks that obtaining the 90 day Residencia will have any sway whatsoever post Brexit..

Great thread from everybody. Cheers,

Des

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Re: Capital Gains Tax & Residency

Postby Enrique » Thu Mar 23, 2017 5:31 pm

Hi,

Certificado De Registro De Ciudadano De la Unión

Citizens of a Member State of the European Union, another State party to the Agreement on the European Economic Area or Switzerland who are going to reside in the territory of the Spanish State for a period exceeding three months are required to apply for registration Central Registry of Foreigners.

Seem to be flavour of the year back in 2009 and on to this day ......so anywhere you would need to show NIE they started to ask for the "Green Form"............and still do up in this area.......Jaén

So basically a Rule if you want to spend over three months in Spain. The Form is not Dated nor can it be used for ID.

Keep flight details and/or Ferry tickets so should you be asked you have a record days in Spain..........I've never been asked in all the years I've been coming to Spain.
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Re: Capital Gains Tax & Residency

Postby El Cid » Thu Mar 23, 2017 6:33 pm

DesWalker wrote:Pensioners can apply for the 90 day Residencia apparently without needing to prove any healthcare provision thus enjoying the benefits of this Residencia without paying anything in return.

I would be interested to hear if anyone disagrees with this premise and thinks that obtaining the 90 day Residencia will have any sway whatsoever post Brexit..

Des


Pensioners have to meet the same healthcare and financial requirements as anyone else. Yes, if they have applied for an S1 form, their healthcare will be covered, but the financial rules still apply. Also, applying for an S1 tells the DWP that you are no longer ordinarily resident in the UK with all the implications that may have.

I don't think holding a normal registration document will necessarily make any difference after Brexit, however, if you have had one for 5 years, then you have the right of permanent residence which Brexit cannot change.

Sid


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