Rental Tax : Depreciation v CGT

Information and questions about the Law in Spain and Andalucia.
Paddy Pumpkin
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Rental Tax : Depreciation v CGT

Postby Paddy Pumpkin » Thu May 06, 2021 12:11 pm

If you have long term rental income (i.e. not holiday let income) you can claim 3% of the value of the buildings as an expense. So that reduces the taxable income.

A friend's gestor just told them that if they claim that depreciation expense then all the depreciation that they claimed is deducted from the original purchase price of the property in a CGT calculation when selling.

Example
Purchase price 150k which 50k land and 100k buildings (no purchase expenses incurred)
Depreciation claimed over 10 years 30k (3% per year of 100k)
Sale price 200k (no sale expenses incurred)

To me that would be CGT exposure of 200k less 150k so 50k
The gestor is saying it is 200k less 150k=50k and then add the 30k depreciation claimed so net taxable is 80k (in other words the original purchase price is deemed to be 30k lower)

I have read the source law and various text books and I can see no mention of this, but maybe I just can't find any mention of adding back the depreciation.
Is the gestor correct?

Paddy Pumpkin
Resident
Posts: 854
Joined: Mon May 01, 2017 12:06 pm
Location: Madrid

Re: Rental Tax : Depreciation v CGT

Postby Paddy Pumpkin » Wed May 26, 2021 7:27 pm

So it turns out the gestor was right and wrong. The purchase price is artificially reduced by depreciation. So you will get a bigger CGT bill.

However even if you don't claim the depreciation deduction, when you sell the house the Hacienda will presume you did claim it.

So if anyone is renting out property make sure you claim the depreciation expense as you will be deemed to have claimed it, when a CGT calculation is made, if you didn't claim it.

Also if you never sell the house you will never pay the CGT....so why pay tax now (via income tax) when you may never have to pay it at all.

Moral of the story if you are renting out property make sure that you claim the 3% depreciation because the Spanish tax man will presume you did when he gives you a CGT tax bill.

AMORTIZATIONS (art. 40 Rgl.)

The acquisition value of the assets transferred will be reduced by the amount of tax deductible depreciation, calculating in any case the minimum depreciation, regardless of the effective consideration of this as an expense.

For these purposes, the amount resulting from the maximum amortization period or the corresponding fixed percentage, according to each case, will be considered as minimum amortization.



https://www.agenciatributaria.es/AEAT.i ... iales.html


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