Non-Resident Selling a Property & CGT

[DesWalker]

Hi All,

My situation ....

Property bought three years ago. After all fees, installation of kitchen and bathroom and fully furnished it has cost €100,000 for which I have receipts. There is no mortgage on the property.

Since then I have remained a non-Resident and have paid all my taxes due in Spain.

Suppose I advertise and sell the property fully furnished through an agent for €150,000 and the agent takes €10,000 so that I agree to receive €140,000 before any deductions for legal fees and taxes.

Can someone please explain the set of deductions taken and the timetable for everything ? Deductions include legal fees, 3% retention amount and finally CGT. Is there anything else I've missed ?

How long after selling do I have the money in my bank account before I must settle my CGT bill and start the long wait to receive the 3% retention amount back ? Is it only three months to settle the CGT ?

How does it work with the double taxation treaty between the UK and Spain ? Where do I pay the CGT ?

Finally, I have heard stories of people who intend to return to the UK, not paying the CGT and letting the government keep the 3% retention amount instead. Is this common and what are the repercussions ?

Many thanks to anyone who is able to help me understand the process. I'm pretty financially and mathematically literate so extra marks for any equations clarifying it all

Cheers,

Des

[Beachcomber]

Please read the FAQ:

viewtopic.php?f=42&t=27591

then ask again if you have any further queries.

[DesWalker]

Hi Beachcomber,

Sorry I didn't realise you'd done a FAQ. Many thanks indeed for the link. A few questions if I may ...

1) Any idea how the plus-valia is calculated and is this also withheld at the time of sale in much the same way as the 3% retention amount or is it up to the seller to pay this separately at a later date ?

2) The FAQ states ... "If the result is positive the seller must pay the balance due" which gives the impression that the seller must only pay what is outstanding above and beyond the monies already paid (presumably the 3% and the plus valia combined). But I was under the impression that the full CGT needed to be paid first before applying for a refund of the retained monies and that this refund has often proved a nightmare to receive even though there is supposedly a six-month timeframe. Can you please clarify your understanding of the situation ?

3) You talk of improvements having an 'escritura de obra nueva'. I am not familiar with this term but am certainly hoping and expecting that the installation of an expensive kitchen with full receipts is sufficient for me to be able to include its cost when calculating CGT ?

4) From the FAQ it appears we have a situation where a vendor is expected to sell his house and allow the other person to move in a month before the purchaser is required to pay the AEAT and submit a form to the vendor. What happens if the purchaser simply doesn't do what they are supposed to do with this payment and form ? Surely the vendor cannot be made liable for this shortfall/negligence and hopefully a "I'm not paying any CGT until the purchaser pays their amount first" excuse will be perfectly adequate for the authorities ? Or maybe the failure of purchasers to pay this amount is responsible for the very common delays in repayment of the 3% to the vendor which might explain the requirement to cough up the full CGT first and pray that you get the 3% back at some point ?

5) I take it there isn't a tax-free CGT allowance in Spain ? Sorry I should know this one.

Many thanks for any answers.

Des

[Beachcomber]

The plus valía is calculated according to indices held by each individual town hall. Some town halls have on online calculator as does the patronato office if the municipal accounts are handled by them. You can also ask the town hall for an estimate of the likely amount

If all else fails you can get a good idea of the amount here:

http://www.foro-ciudad.com/plusvalia-municipal.php

If you are a foreigner with no other property in Spain it is very likely that the amount of the plus valía will be withheld by the purchaser which will be written into the escritura. It can often take several months for the plus valía bill to appear by which time any foreign seller will be long gone.

In respect of the retention the FAQ means exactly what it says. When you calculate your capital gains tax you pay more if it is not covered by the amount of the retention and reclaim the balance of the retention if it is less. The plus valía does not enter into the equation. Logically, how could you pay the full amount of CGT if none was due or it was already covered by the retention.

The refund is only a nightmare if the claim is not handled properly. If everything is correct AEAT will make the repayment prior to the six month limit because, otherwise, they have to pay interest.

As far as expenses on purchase are concerned, this is a self assessment declaration so you can put whatever figure you like as long as you can justify it if AEAT decides to closely examine your claim. There is a point at which an inspection will be triggered if the amount of the expenses on purchase exceed a certain percentage of the purchase price stated in the escritura. From previous experience this appears to be around 7% excluding VAT or transfer tax.

You cannot claim the cost of furnishing the property as an expense. Kitchen and bathroom are questionable and the question is entirely subjective.

The matter of the withholding of the retention is written into the escritura and the purchaser will be subject to draconian sanctions if he does not pay the amount of the retention to AEAT in the allotted time. You certainly will not be liable to pay it again as part of your capital gains tax.

At the time of writing there is no tax free CGT allowance for non-residents in Spain although there are coefficients that can be applied if the property was purchased prior to 1986.

[DesWalker]

Many thanks for the detailed reply and the Plus Valia calculator. Regarding the latter I am amazed it is so much if I am using the calculator correctly. For my Province I get a Plus Valia tax of 1.11% of the Valor Catastral for each year of ownership which over a few years builds into a substantial sum. This sum is not linked to any profit made rather it is an ever increasing duty that needs to be paid even if the property is sold at a loss. It seems crazy ....

Can you explain the logic of this tax. Why is this appreciation of the land value not accounted for by the CGT charged ? The profit made on a property takes into account the appreciation in value of all aspects of the property including the land it sits on, so why tax this land appreciation twice instead of once by allowing it to be offset against any further CGT due exactly like you say happens with the retained 3% ?

What is very clear is that the Spanish government is very determined to extract as much money as possible (much of which may not even be profit) from someone in my situation.

Is the situation much better for residents ?

Regarding the offsetting of the 3% against any CGT due, the reason for my question was that I had read elsewhere that it could not be offset because crazily the payments were to different departments. Hence the requirement to pay the full CGT bill and only then could one start to claim back the 3% withheld. But it is very good news if this is not the case so thanks for clearing that up.

[Beachcomber]

The calculation of the plus valía is entirely arbitrary. The situation is the same for residents. When using the calculator remember to input only the portion of the the valor catastral that corresponds to the land. This should be shown separately on the IBI receipt. The amount of tax payable may be deducted as an expense against the sale price when making the capital gains tax declaration.

The 3% retention made by the purchaser is paid to AEAT on account of your capital gains tax obligation. If the actual tax payable is more than the amount of the retention you have to pay the difference. If the tax payable is less than the retention you reclaim the difference. If the difference between the actualised purchase and sale price is a negative figure you reclaim the whole amount.

Just to make it clear, the retention goes towards paying your capital gains tax if any is due. You do not then have to pay the whole amount of the tax before you can reclaim the retention. This is a complete nonsense and it would be a good idea to take any other information from the same source with a pinch of salt.

AEAT has six months from the date of the declaration to refund any part of the retention that is due. If there is an error in the declaration the clock starts again from the date that the error is corrected. The claim will be rejected if the payment of annual non-resident taxes is not up to date.

[DesWalker]

Thanks again Beachcomber.

I had used the full Valor Catastral in the calculator hence the scary numbers coming back at me so many thanks for explaining where I was going wrong. I'll have to dig out an old IBI bill to see what is on there about the land. Is it called anything in particular ?

Also, thanks for explaining that the Plus Valia is an expense to offset against any CGT which is due, so there is no double-counting as I had feared.

Finally, thanks for refuting the duff information I had read elsewhere about paying full CGT before reclaiming the 3%. It is so much more straightforward to simply pay whatever balance is due beyond that already paid.

Des

[Beachcomber]

The portion of the valor catastral pertaining to the land is called 'valor catastral suelo'.

The amount of the plus valía is an expense deducted from the sale price before the capital gains tax is calculated. It is not deducted from the resultant capital gains tax.

[concorde]

Beachcomber can you please explain this part of your reply post

(AEAT has six months from the date of the declaration to refund any part of the retention that is due. If there is an error in the declaration the clock starts again from the date that the error is corrected. The claim will be rejected if the payment of annual non-resident taxes is not up to date.)


If a retention claim is made, say for instance in January, how soon can the last years non-resident tax be paid?

[peteroldracer]

The first thing I would do is find another estate agent, as we have agreed 3% commission....

[Beachcomber]

The period for paying the non-resident tax is any time during the calendar year following that in which it becomes due. For example, the tax for 2016 may be paid at any time between the 1st January 2017 and the 31st December 2017.

If you submit your capital gains tax declaration and make a claim for the refund of the 3% retention on the sale of the property in January 2017 it should be repaid within six months of the date of submission meaning that it should be received sometime in July. This is nearly six months prior to the deadline for payment of the non-resident tax for 2016 so the fact that it has not been paid should not affect the refund of the retention.

This obviously does not negate your obligation to pay the tax for 2016, pro-rata if applicable.

[concorde]

Thanks Beachcomber for answering my query.