Retaining residency while outside of spain

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elusive
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Retaining residency while outside of spain

Postby elusive » Mon Aug 12, 2019 8:46 am

The law says a perm.. resident can leave spain for upto 2 years without losing their residency.and i believe you can fill the 030 form to declare you are no longer tax resident.

So I'm wandering what peoples opinion are of doing this inorder to return to the uk to sell a property and then return to spain the following tax year. Keeping their residency and declaring themselves tax resident again. Has anyone every done this or heard of it been done?

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Re: Retaining residency while outside of spain

Postby Paddy Pumpkin » Tue Aug 13, 2019 9:25 am

Whilst not answering your query. Here are a couple of thing to consider

Principal private residence relief in the UK is only fully available if you have continuously lived in the house and never rented it out. So you won't get the full relief. But I think gains since 2015 are the only part taxable....but double check that part about since 2015.

It is possible to be tax resident in both countries and then the double taxation agreement will decide which country taxes your gain, so you might not actually have to declare yourself as non tax resident in Spain. The gain will just be taxed in the UK.

I am sure you have considered it but if the UK property is rented out there are fewer more tax efficient invest than living in Spain and renting out UK property. If the total income is less than your UK tax free allowance your tax bill in the UK will be zero and in Spain the deductions to arrive to the net taxable income are huge. I have considered doing what you are thinking about (selling UK property before I became Spanish tax resident)but just couldn't find any investment as good and tax efficient, infact I am actively looking to invest in further properties for rental income given the favourable tax treatment here. Just not in Spain as the law is too much in favour of the tenant.

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Re: Retaining residency while outside of spain

Postby elusive » Tue Aug 13, 2019 9:08 pm

Thanks for your info paddy. Interms of capital gains I'm thinking about the tax in spain rather than the uk side. As CGT in spain would be huge and make it impossible to sell while a spanish tax resident. And therefore impossible to buy in spain and get away from renting. We do currently rent out our U.K property.

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Re: Retaining residency while outside of spain

Postby El Cid » Tue Aug 13, 2019 10:12 pm

Was the UK house your permanent home? If the CGT could be avoided, would you reinvest in Spain? If so you may be eligible for reinvestment relief.

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Re: Retaining residency while outside of spain

Postby elusive » Wed Aug 14, 2019 9:02 am

Yes it was their perm home in the uk.yes to reinvest as they hate the insecurity and state of properties that are available to rent Our gestor amongst many others have said because we have not lived in the uk house for three years prior to selling there is no relief regardless. Even though the owners are O.A.P etc

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Re: Retaining residency while outside of spain

Postby El Cid » Wed Aug 14, 2019 10:28 am

There is a grace period. If it was your main home (3 years residency) at any time up to two years prior to the sale it qualifies for relief. Also if it was sold for reasons of change of job, bereavment or health, then the 3 year rule may not apply.

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Re: Retaining residency while outside of spain

Postby elusive » Wed Aug 14, 2019 12:21 pm

Thanks cid. Unfortunatly they dont come under any of that either

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Wicksey
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Re: Retaining residency while outside of spain

Postby Wicksey » Wed Aug 14, 2019 2:53 pm

That's an interesting question elusive as we are in the same position. The UK house is rented to a wonderful couple who look after it so well that at the moment we have no plans to give them notice and they have indicated that it is a long term home for them. However, should they give us notice then there is the question of what to do with it. I must say the prospect of paying so much in Spanish CGT is off putting but maybe one day in the future we would like to release that capital and do something else with it. I don't know if the dreaded brexit (if it ever happens) will affect any CGT matters either here or there, but it is certainly something that we have thought about, how to dispose of the UK asset without loosing a huge chunk of it to tax.

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Re: Retaining residency while outside of spain

Postby Paddy Pumpkin » Wed Aug 14, 2019 3:30 pm

elusive wrote:Thanks for your info paddy. Interms of capital gains I'm thinking about the tax in spain rather than the uk side. As CGT in spain would be huge and make it impossible to sell while a spanish tax resident. And therefore impossible to buy in spain and get away from renting. We do currently rent out our U.K property.


Keep in mind though it is possible to have two tax residencies. So you would not have to give up Spanish residency to qualify as a UK tax resident. Once you are UK tax resident then you will be subject to UK CGT...which is what you want.

However, once UK tax resident, whether you will also be subject to Spanish CGT is what you need to explore the Double Taxation agreement for. The agreement will stipulate whether Spain also has a claim on your gain or only the UK. We know that if you are resident only in Spain then you have to pay in Spain but if you are resident in UK as well as Spain then it may be that Spain cannot tax you again.

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Re: Retaining residency while outside of spain

Postby Paddy Pumpkin » Wed Aug 14, 2019 3:38 pm

Wicksey wrote:That's an interesting question elusive as we are in the same position. The UK house is rented to a wonderful couple who look after it so well that at the moment we have no plans to give them notice and they have indicated that it is a long term home for them. However, should they give us notice then there is the question of what to do with it. I must say the prospect of paying so much in Spanish CGT is off putting but maybe one day in the future we would like to release that capital and do something else with it. I don't know if the dreaded brexit (if it ever happens) will affect any CGT matters either here or there, but it is certainly something that we have thought about, how to dispose of the UK asset without loosing a huge chunk of it to tax.


Brexit won't have any impact as taxation is dealt with by the Double Taxation Agreement which is in no way connected to the EU and is negotiated directly between Spain and the UK. Both the UK and Spain also have multitudes of DTAs with countries outside the EU.

Also if you do ever think about using the funds for something else, if it is another investment you will really struggle,e to do as well ....read my post above. I had no CGT issues and I just couldn't find any investment that even came close.Also keep in mind that for wealth tax purposes the property in the UK is valued at purchase price not the market value or the sale value. So you would sell an asset, be subject to CGT on the whole gain since purchase, and then potentially have to pay wealth tax, and then invest in a potentially less tax efficient investment.

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Re: Retaining residency while outside of spain

Postby Wicksey » Wed Aug 14, 2019 3:48 pm

If we sell the property we will still be well below the wealth tax threshold. We own two houses but both are tiny and not worth that much. In the future, as we begin to receive more pension income, we will not need the rental income and the money may be spent on a second home for us somewhere, or just blown on frivolous stuff :lol: We have no-one to leave our assets to so are thinking that as we get older we may as well spend some of the money tied up in property or buy a holiday home for us, so are not looking to invest it for an income as such.

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Re: Retaining residency while outside of spain

Postby IreneD » Wed Aug 14, 2019 6:34 pm

You can adopt me if you want someone to leave your assets to, Wicksey? :D Oh, hang on - I'm quite a bit older than you so will no doubt go first lol.

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Re: Retaining residency while outside of spain

Postby Paddy Pumpkin » Wed Aug 14, 2019 6:55 pm

Wicksey wrote:If we sell the property we will still be well below the wealth tax threshold. We own two houses but both are tiny and not worth that much. In the future, as we begin to receive more pension income, we will not need the rental income and the money may be spent on a second home for us somewhere, or just blown on frivolous stuff :lol: We have no-one to leave our assets to so are thinking that as we get older we may as well spend some of the money tied up in property or buy a holiday home for us, so are not looking to invest it for an income as such.



maybe consider equity release product. You get a lump sum now...but still own the house for the rest of your life. You also get income for the rest of your life from renting it out.

However what the Spanish tax man would make of all of that I have no idea. Considering Spanish taxation cannot deal with leasehold, Joint Tenants and other types of ownership that are common in other countries I think that it would result in a system overload!

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Re: Retaining residency while outside of spain

Postby elusive » Wed Aug 14, 2019 7:07 pm

Intresting to hear your in the same sort of boat wicksey.from what ive read on other sites etc there seems to be alot of people in the same position.those who werent even aware of the CGT implications and even pulled out of sales after finding out they would have a large tax bill. I guess thats what happens when you are "stupid" enough to do things by the book. Maybe you could gift it and the tax on that is very little but if you have no one to leave it to.

Doing equity release would no doubt give hacienda a heart attack or rubbing their hands at the thought of taxing the release lol

If you renounce your spanish tax residency and leave the country for upto two years then i cant see how hacienda would have a claim on it. But of course thats something to be discussed with a gestor cause they prob will make a claim on it as in reality its pretty obvious as to what you are doing.

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Re: Retaining residency while outside of spain

Postby Wicksey » Thu Aug 15, 2019 11:28 am

IreneD wrote:You can adopt me if you want someone to leave your assets to, Wicksey? :D Oh, hang on - I'm quite a bit older than you so will no doubt go first lol.


:clap:

Not sure if equity release is only for UK residents on their main home there. It is an idea but would probably be taxed just as much as CGT here :crazy:

Elusive are you going to ask your gestoria for advice? Be interesting to know what is suggested.

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Re: Retaining residency while outside of spain

Postby elusive » Thu Aug 15, 2019 2:00 pm

Yeah i will ask her for her opinion. Be intresting to see what she thinks. Shes used to me chewing her ear!

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Re: Retaining residency while outside of spain

Postby El Cid » Thu Aug 15, 2019 3:04 pm

Equity release was legalised a few years ago in Spain but the offers are not as attractive as those in the UK, probably because most of the UK ones are almost scams!

I cannot see that there is any tax implication in Spain as it’s just a loan. If you buy a new car on finance, you are borrowing money against the security of an asset and they can’t tax you on that.

Incidentally if you are a permanent resident in Spain you can only leave Spain for one year, not two. That timescale would make it almost impossible to change your tax residency twice in a year.

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Re: Retaining residency while outside of spain

Postby katy » Fri Aug 16, 2019 12:05 pm

I think it is better to consult a tax advisor who specialises in international taxes when it involves more than one country. Gestors can be fine for normal spanish taxes but not complex affairs. Maybe a bit more costly but a good Advisor could mitigate your taxes with tax avoidance methods. Just make sure they are registered to practice with the Spanish Authorities and do a bit of research. As Sid say if it is regarded as a loan shouldn't be taxed but needs clarification as to how tax authorities see it.

Home equity seems a good idea especially for those without Heirs but google is full of Brits who have lost millions through taking out equity schemes in Spain. Friends in Marbella looked into it, they are in their late 70's. Their bank actually put them in touch with a company!! They offered them a scheme where they received 50% of the valuation of the house in return for signing over ownership of the house to said Company and the couple would then get an infrastruct to live in it until death. It is a minefield.

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Re: Retaining residency while outside of spain

Postby Paddy Pumpkin » Fri Aug 16, 2019 12:40 pm

At the risk of dwelling on a point.

The idea is not to give up Spanish residency but to become dual resident.
https://www.gov.uk/government/publicati ... dents-2019


Below is how the Spain/UK DTA defines what to do in the event that you are tax resident in both countries.
So in the case of the O.P. who I am guessing is British...then the tie breaker would be the British passport, which would define them as UK tax resident.

DTA Text for deterimining tax residence for a dual resident is as follows

2. Where by reason of the provisions of paragraph 1 an individual is a resident of
both Contracting States, then his status shall be determined as follows:
a) he shall be deemed to be a resident only of the State in which he has a
permanent home available to him; if he has a permanent home available
to him in both States, he shall be deemed to be a resident only of the
State with which his personal and economic relations are closer (centre
of vital interests);
b) if the State in which he has his centre of vital interests cannot be
determined, or if he does not have a permanent home available to him
in either State, he shall be deemed to be a resident only of the State in
which he has an habitual abode;
c) if he has an habitual abode in both States or in neither of them, he shall
be deemed to be a resident only of the State of which he is a national;
d) if he is a national of both States or of neither of them, the competent
authorities of the Contracting States shall settle the question by mutual
agreement.


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