residencia and tax

[foremarion]

Confused of San Pedro - We have applied for residencia prior to selling our property. Once we get the residencia do we have to wait 3 years before selling the property? What tax will we get clobbered for. We will be immediately buying another property here is Spain. I am confused by so many differences of opinion. Gestors say wait, our lawyer says no problem.

[El Cid]

I assume you are talking about your CGT liability.

Assuming you have owned the property for 3 years at the time of sale, as a resident, if you reinvest all the money in another property within 2 years which is also your primary residence, then there is no CGT liability.

That's the theory, the problem is proving that you are tax resident at the time of sale.

Some notaries are happy to accept a resident's card as proof. Others insist on a certificate of tax residency from the tax office which may not be forthcoming if you have only just become resident.

It's a pretty grey area at the moment so that is why you are getting conflicting advice.

The worst that can happen in the short term is that the buyer has to withold 5% of the price until you sort it out, hopefully in your favour.

If it goes against you then you will pay CGT.

Sid

[spain_pam]

This was from our solicitor:

There are a few points to keep in mind before proceeding with the sale and purchase:

1.- Residency card is an important issue, but tax office is more concerned with being tax payer. I mean, to be taxed as resident, the tax authorities will request from you some background as tax payer, rather than residency card.
The same applies for ******, although he will have to apply for residency card first.

2.- If you buy a property with a mortgage, before you sell the present one, when this one is sold, you just need to cancel the mortgage with the proceeds of the sale. That will be considered as re-investment.

3.- Re-investment is only of application to the main house, the one you have lived in permanently for more than 3 years. the only evidence of being resident is the card, and if it was issued last year, neither you or **** will fulfil the circumstance to have lived permanently (as residents) more than 3 years except that you can find other evidence, such as registration at town hall since you bought, some solid evidence from an official body. Otherwise, what counts is the date in the residency card.

Unquote.
There was a posting confirmimg this a few months back but I can´t find it, sorry

[El Cid]

neither you or **** will fulfil the circumstance to have lived permanently (as residents) more than 3 years

I am not sure that this is correct. I know two cases where CGT relief has been given with less than 3 years residency. AFAIK the only requirement is to be tax resident at the time of sale. There is certainly nothing in the Spanish tax manual to contradict this.

Many lawyers give incorrect advice on this point - lawyers are not normally tax experts.

If in doubt, go to the tax office or the notary and ask them.

Sid

[Beachcomber]

As with most things in Spain it seems to depend on where you live.

The tax office in Alora dishes out certificates of fiscal domicile like chocolate drops but presumably San Pedro comes under Marbella and you may find the staff there a little more difficult to convince.

[spain_pam]

we were told by two different abogado´s that the 3 years residencia was correct, we contacted another to query what we were told by the first one and she confirmed it was correct Unfortunatly there is too much money involved to gamble with this one until we hear differently that is!

[Beachcomber]

As Sid says, don't base your financial future upon what you are told by a Spanish lawyer.

It is the notary who has the final say on whether to impose the 5% retention and even they vary in the interpretation of the fiscal regulations which are far from clear.

Even if you are able to prove your status as a fiscal resident to the satisfaction of the notary and are not subjected to the 5% retention you still have an obligation to declare your capital gain as a resident albeit at a considerably lower percentage.

The sell up and run option is no longer a viable one as cases of evasion of Spanish taxes by foreign residents who return to their home country are now being pursued through increased co-operation between the tax authorities of EU member states.

[katy]

Read that a resolution from Brussels stated that Spain is discriminating against foreigners by imposing a higher rate of capital gains tax. Any changes may not happen for years though

[El Cid]

That is true, of course. Residents pay only 15% max and non residents pay 35%.

However most residents do not pay anything as they get roll over relief on their property as the house is their primary residence.

Non residents will never get the same allowances and relief as, by definition, their house is not their primary residence.

Individual countries are allowed to give different relief for primary residences as opposed to holiday homes.

The best a non resident can hope for is a reduction in tax to 15% which is what a Spaniard pays on a second home.

But don't hold your breath - Spain has a long history of ignoring EU directives!

Sid

[Beachcomber]

The difference in these rates is not based on nationality it is based on fiscal domicile.

In other words, a non-resident Spaniard is in exactly the same position as a non-resident foreigner and he also has to pay renta and patrimonio, with no allowances, on any property he owns in Spain in exactly the same way as a non-resident foreigner.

[jpinks]

So what happens to someone who spends 4 months in Spain, 4 months in USA and 4 months in India, but has elected to be taxed in UK? Not officially resident in any of them. And - no - this is not hypothetical.

[katy]

I was wrong about this one

[Lavanda]

Blow it!!! I'll have to take that back about you having Alzeheimers!

[Martin Page]

I'm with jpinks on this .... say - 5 Months in Spain, 4 Months in the UK, 3 Monts in Italy. Income earned and taxed in the UK. - This is also a true life situation.

Whilst Spain wont like the idea ... It cannot be parochial in its application of European Legislation. I just hope that Spain can be lobbied into submission before I get into a position of selling and moving.

[Beachcomber]

Provided you are submitting your annual non-resident income tax return this should not be a problem.

[El Cid]

I'm with jpinks on this .... say - 5 Months in Spain, 4 Months in the UK, 3 Monts in Italy. Income earned and taxed in the UK. - This is also a true life situation.

Under those circumstances you would be UK tax resident as the UK rule is 90 days, not 183.

Also any income earned from duties performed in the UK is taxed in the UK IRRESPECTIVE of tax residency.

Sid

[Martin Page]

So Beach\Sid - what are you saying - at the moment I would be liable for the non residents CGT despite this propertyin Spain being the only one I own. Is that right ?
Even though my health cover has now been transferd from the UK to Spain via E121 and using an EHIC card for Italy and the UK - Spain is my primary country of residence in terms of which I spend the most time in.

There are other issues that I have now concluded that im not a UK resident. Defined not by law but by custom and practice of comerce - See the other postings

And ....what if .... I reduced my time in the UK to less than 90 days a year.

Countries of the EU can not get there heads round the concept of an individual being European !!! That, in its way, is tantamount to descrimination is it not - At least the UK manged to accept me as being a Yorkshireman but that took a few generations !

[El Cid]

The rules apply to both resident and non residents and the tax is the same. If it is your "habitual residence" then the reliefs for reinvestment or age apply. However, unless the taxman considers you to be tax resident there is no way the house will qualify as your habitual residence so you get no tax breaks.

As has been said many times, the primary qualification for tax residency is spending more than 183 days in one year in Spain. If so you must pay Spanish tax on your worldwide income (except for some government pensions) and unless you can prove to the taxman that you have been paying these taxes or have a pretty good reason for not submitting an annual declaration (very low income) then he will not give you a tax residency certificate.

As for the 90 days in the UK that doesn't change the situation in Spain - you can be tax resident in both the UK and Spain at the same time. Under this situation, any tax paid in the UK can be deducted from the tax paid in Spain.

Complicated? No. Confusing? Yes.

Sid

[Beachcomber]

I was referring to non-resident income tax not CGT. This is payable if you own a property in Spain even if you never set foot inside the country and even if you derive no income from it.