Posts Tagged ‘Selling Spanish Property’
Paying Tax in Spain – Exploding the Myths
Many British expatriates arrive in Spain to live without fully understanding the local tax situation or any obligations that may remain to the UK taxman. There are quite a few myths around and unless you are properly informed you may get your tax planning wrong. This article looks at some of the common misconceptions and separates fact from fiction.
I am resident in Spain but complete a full tax return in the UK
► You become resident for tax purposes in Spain if:
- you spend more than 183 days in one calendar year in Spain (the days do not have to be consecutive), or
- your “centre of economic interests” is in Spain, or
- your “centre of vital interests” is in Spain, or
- your spouse is resident in Spain unless you can prove you are resident in another country.
► As a resident of Spain you are liable for income and capital gains taxes on your worldwide income.
► If you receive a gift or inheritance as a Spanish resident, you may be liable to Spanish succession tax.
► You must complete a Spanish tax return in respect of your worldwide income.
► A UK tax return only needs to be completed in respect of certain non-exempt income, such as rental income from UK property.
I am taxed at source on my UK assets and therefore I am not liable to tax in Spain on these assets
► You are entitled to double tax relief if you have income subject to tax at source in the UK which is also taxed in Spain.
► You can usually make arrangements for tax not to be deducted at source in the UK on certain types of income. This income would then be received gross and taxed solely in Spain.
I am taxed at source on my offshore bank accounts under the EU Savings Tax Directive and therefore am not liable to tax in Spain
► Paying withholding tax on offshore interest payments does not mean that you have no further tax liabilities on the same income in Spain.
► You still must declare such earnings on your Spanish tax return.
► If you pay the withholding tax and declare the income in Spain you are unlikely to receive any tax credit in Spain and could pay tax twice.
I can withdraw 5% of my UK/offshore insurance bond per year for 20 years without any liability to Spanish tax
► The 5% rule only applies to UK residents.
► As a Spanish tax resident, your offshore insurance bond will be taxed according to the Spanish rules.
There is no tax to pay if I have not taken withdrawals from my insurance bond
► The taxation of insurance bonds in Spain depends on whether the bond is ‘qualifying’ (issued by an EU country and compliant with Spanish regulations) or ‘non-qualifying’.
► Non-qualifying bonds are valued at 31st December each year and any increase in value from 1st January is taxed in full as income, even if there has been no withdrawal. The taxable income is taxed as savings income, so at 19% on the first €6,000 and 21% on any balance. For example, if an investment bond increases in value by 10% from €200,000 to €220,000 in any one year, the tax payable in Spain is €4,080 (€6,000 x19% = €1,140, + €14,000 × 21% = €2,940).
► Any fund located in a ‘tax haven’ (eg Isle of Man, Jersey, Guernsey) is non-qualifying and will receive this unfavourable tax treatment.
A withdrawal from a qualifying offshore bond will be taxed at 19% on the first €6,000 and 21% on any balance
► There is no tax to pay until a withdrawal is made from qualifying bonds in Spain.
► The taxation is very favourable because only the growth in value element is taxed, not the whole withdrawal. Using the above example, if you withdraw €20,000 you will only need to pay tax on roughly 10% of it. The taxable income is therefore €2,000 and your tax liability (at 19%) is only €380.
UK investment bonds are tax free in the UK for Spanish residents
► A UK investment bond is taxed at source in the UK.
► The tax deducted can be set against your tax liability in Spain, so you do not pay tax twice on the same income.
► If you have either a non-qualifying insurance bond or a UK investment bond it will be advantageous to transfer it to a qualifying, non-UK, bond.
I am a UK national and not liable to Spanish succession tax (SST)
► SST is payable if the inheritor or recipient of a gift is resident in Spain, or the asset being gifted or passed on death is situated in Spain.
► The tax rate can be as high as 34% for inheritances or gifts within the immediate family or higher for more distantly related recipients.
► Depending on which region you live in, there are usually deductions available according to the closeness in relationship between the recipient and the deceased, and other exemptions may be available.
► SST can often be avoided through use of an offshore trust.
Contact an experienced international tax and wealth management adviser like Blevins Franks for advice on tax mitigation strategies in Spain.
Note that the tax treatment(s) detailed above are current at the time of writing and may change in the future.
By Bill Blevins, Managing Director, Blevins Franks
Offshore Banking Moves Further Towards Tax Transparency
Few expatriates used to think twice about opening an offshore account. They provide a means of keeping Sterling outside the UK (useful to help prove your UK-non residency status); you can usually open and use them from anywhere in the world; interest rates were often higher than their onshore counterparts and they have also been popular for ‘tax planning’ purposes.
While the first two benefits listed above still apply, offshore banks do not necessarily offer the same interest rate advantages that they used to, and from a tax planning point of view the situation is very different today, with more developments on the horizon.
Following the collapse of Icelandic banks in the Isle of Man and Channel Islands, savers also began to question how safe their savings were, even through the jurisdictions did then implement or improve depositor protection schemes.
As a result of these changes, more savers today are considering alternative homes for their wealth.
Offshore banks were often used by people to hide capital and interest earnings away from the taxman. While they were legally obliged to declare worldwide income, the taxman had no means of tracing their account so there was little pressure to report it. Interest was usually paid gross and as offshore banks were not bound by the laws of your country of residence it was a case of ‘what the taxman doesn’t know about he can’t tax’.
The introduction of the EU Savings Tax Directive in 2005 served to change this. All Member States are required to operate automatic exchange of information on interest payments on accounts held by residents of other States. However, Belgium, Luxembourg and Austria were allowed to operate a withholding tax system with a view to change to automatic exchange of information after a transitional period.
The Isle of Man and the Channel Islands also operate withholding tax with the option for exchange of information. The withholding tax option effectively maintains banking secrecy. Although the interest earnings now have tax deducted at source, it still falls to the owner to declare it in his country of residence.
By this time next year this will have changed. In June the Isle of Man parliament agreed that from 1st July 2011 it will withdraw the withholding tax option and only operate automatic exchange of information – there will be no more banking confidentiality for EU residents. This was an endorsement of the commitment it made at the Organisation for Economic Co-operation and Development (OECD) Forum in June 2009. It was the first offshore jurisdiction to do this and the decision will impact on all expatriates who have not declared their Isle of Man accounts in their country of residence. Anyone affected by this will need to ensure that they have reported all their interest to their local tax authority … or bear the consequences.
Following quickly on the Isle of Man’s heels, on 28th July Guernsey’s Chief Minister announced that the jurisdiction will introduce automatic exchange of information, thereby abolishing the current option to pay a withholding tax and avoid disclosure. A government announcement said that Fiscal and Economic Policy Group has recommended to the Policy Committee that institutions in Guernsey should move to automatic exchange of information from 1st January 2011, and no later than 1st July 2011.
Following the announcement, other European jurisdictions which operate the withholding tax option, eg Switzerland, could come under increased pressure to follow suit. In any case, the withholding tax rates jumps from 20% to 35% next July.
High interest rates a distant memory
Currently interest earned in offshore banks is not generally more beneficial than onshore banks. The days have passed when they were in a position to offer high returns to attract investors.
With the money markets expecting the Bank of England base rate to stay low for some time, many offshore banks have cut the rates they offer on fixed rate bonds. In June, Michelle Slade of Moneyfacts warned that now that demand for savers’ money has eased, rates are being cut as banks readjust back to more normal margins. “Banks do not want to pay more than they have to on savings, so once a few cut rates, others will invariably follow,” she said.
While a couple of banks did increase rates on fixed term bonds in July, there are still very few attractive rates available to those who do not want to tie up their money for too long.
Who owns your bank?
Do you really know who owns the offshore bank you may be using and in which jurisdiction it is based? Since the credit crunch more countries have set up depositor protection schemes but you would need to check with the bank exactly what protection they offer. Banks are no longer considered to be 100% safe and in the event of another failure it could take a long time to receive compensation.
Offshore banks closing
At any time and without much warning offshore banks are being closed down, leaving savers with less options. In June Northern Rock announced that it is closing down its operation in Guernsey on 2nd September and Irish Permanent said it was shutting its Isle of Man branch by the end of the year. Other banks may follow as they retrench and reduce peripheral arms of their business. For example the Yorkshire Building Society is deciding whether to keep Yorkshire Guernsey open or not.
More and more foreign banks are closing their doors to US citizens as the US authorities take ever draconian measures to trace and prevent tax evasion. France started to close branches of French banks in tax havens from March 2010.
Many of advantages that offshore banks used to offer investors are gradually being eroded. There are investment structures available which can reduce tax liability, and offer the potential for capital growth and higher rates of return. Speak to an experienced tax and wealth manager like Blevins Franks for the most suitable tax planning and investment strategy to meet your specific circumstances.
By Bill Blevins, Managing Director, Blevins Franks
Reduce Spanish and UK Inheritance Tax with A QNUPS
British expatriates living in Spain want to feel confident that their wealth will last them for the rest of their retirement and keep them in a comfortable lifestyle. Paying less tax is one way to protect your assets and legitimate tax planning methods can help with this. The latest arrangement available to British expatriates is QNUPS (Qualifying Non-UK Pension Schemes) which can reduce taxation in Spain –as well as UK inheritance tax (IHT).
Spanish tax savings which can be made with a QNUPS are:
- QNUPS can avoid succession tax in Spain as well as succession law.
- There is no Spanish tax on the transfer into a QNUPS.
- Funds within the scheme will grow free of Spanish income tax.
- If you make a withdrawal in the form of an annuity from the fund itself (as is usually the case), very favourable Spanish tax provisions may apply.
- There is no need to buy an annuity from an insurance company.
- You can withdraw up to 25% as a lump sum from a QNUPS. If a lump sum is taken Spanish tax is due, but is calculated only on the difference between the capital received and the contributions you made. The tax rate is 19% (on the first €6,000 of total savings income, including that from other sources) and 21% on the excess.
- The balance of your investment can pass onto your heirs on your death.
- A QNUPS can avoid wealth tax if a rate is reintroduced in the future.
No UK IHT with a QNUPS
If you are a British expatriate, you may be liable to UK IHT on your worldwide assets, even if you are Spanish tax resident. This is because liability to IHT is based on domicile and not residency.
Shaking off your domicile is not easy to do and usually takes at least three years and involves pruning your ties with the UK to the bare minimum. For example, you would need to sell your UK property or at least not have it available for use; close surplus bank accounts, credit and debit cards and other investments; sell your vehicles and cut down social and business connections in the UK. You need to be able to provide evidence that you do not intend to return to the UK, and establishing a permanent home in Spain and making a Spanish Will will help. Even if you do lose your UK domicile status, you would regain it as soon as you move back to the UK to live.
Many Britons who relocate to Spain do so without a thought of moving back to the UK. But the fact is that as the years go by many do for a variety of reasons, such as on the death of a spouse or partner or to be closer to grandchildren as they grow up. Returning to the UK means returning to a UK liability to IHT, currently at 40% above the nil-rate threshold of £325,000 per person or £650,000 for spouses and civil partners.
Investing in a QNUPS takes away the worry over whether or not you are still UK domiciled and liable to IHT, or whether you may later return to the UK. Assets in a QNUPS are immediately exempt for IHT – even if you are UK domiciled.
Other advantages of a QNUPS
- Investable wealth can be placed in a QNUPS. You cannot invest a UK pension plan directly into a QNUPS, although it is possible after you have been non-UK resident for five complete, consecutive UK tax years, as long as you go via the QROPS route first.
- There is no maximum age at which you can invest in a QNUPS.
- There is no maximum contribution.
- You do not need to have any earned income from an employment.
- Income and a lump sum can be taken from age 55, or can be deferred until the age of 75 (although if you take income earlier, the lump sum needs to be taken then).
- Assets can be invested and benefits taken in any currency of your choice, giving you the opportunity to remove currency risk.
- Income which is taken is drawn down from the fund, leaving your scheme assets invested and rolling-up free from tax.
A QNUPS provides an opportunity for flexible investing and choice. It doesn’t matter how old you are or how long you have been retired, investing in a QNUPS will give immediate tax benefits, especially for Spanish succession tax and UK IHT. Within QNUPS the funds will remain fully invested and will be subject to investment risk, in line with your investment objectives.
Blevins Franks is an established international wealth and tax management firm with full knowledge of the rules of taxation in both Spain and the UK. Contact an adviser such as Blevins Franks to learn how QNUPS can help you.
Note that the tax treatment(s) detailed above are current at the time of writing; these are based on our understanding of current UK and Spanish legislation and taxation practice, and may change in the future.
By David Franks, Chief Executive, Blevins Franks
Britons missing out on £101M each year on international money transfers
Poor bank rates and high charges for foreign exchange transactions mean individuals need to be savvier when transferring money overseas. Research by Moneycorp reveals that Brits are potentially losing over £101m a year by not shopping around for the best deals when transferring money abroad. Furthermore, uncompetitive exchange rates and high bank charges are costing individuals a lot of money, despite a concerted effort by most to reduce their outgoings on luxury and even staple items.
David Kerns, Head of Personal Clients at Moneycorp, comments:
“While many individuals are visiting comparison websites more frequently, checking voucher code sites and consulting online consumer forums before purchasing goods in order to save money, this mindset doesn’t seem to have extended to foreign exchange. As a result, individuals are missing out on a very large sum of money they could be saving, by transferring funds overseas through a foreign exchange specialist rather than a bank. Not surprisingly, high street banks are cashing in as a result of this surprisingly apathetic approach.”
People buying or selling property overseas and people emigrating or repatriating will be particularly affected, though this issue will affect all Brits who are transferring money overseas.
People who own additional properties abroad and make regular mortgage and/or utilities payments will also be badly affected, as every transfer is open to individual transfer charges, in addition to exchange rates.
Data from the UK’s number one property website, Rightmove Overseas, reveals that the average house price in the Costa del Sol in Spain is currently €369,860.68. With a deposit of 10% (€36,986), using a high street bank rather than Moneycorp would cost an individual, on average, an extra £558 on their deposit alone.
An individual who wants to transfer a lump sum of £100,000 to an account in Europe would lose out on an average of €1,690 by using their bank for the transfer into euros.
David Kerns concludes: “Despite the UK coming out of recession recently, individuals shouldn’t be lining the pockets of their bank managers and it’s in their best interest to maximise their investments. Prior to making any overseas payments, we always advocate that people shop around to get the best rates possible.”
Credit: Moneycorp – commercial foreign exchange – www.moneycorp.com
Note:- Follow our link for more information: -
http://www.moneycorp.com/affiliates/microsite/index.cfm?agentid=10082123
Home repossessions are on the increase.
The government has accepted to reform the code of civil procedure to raise the threshold for salaries that cannot be seized when executing a mortgage in order to protect low income families and follow through with a proposal from the IU-ICV parliamentary group.
With the new legislation, pending final approval, the minimum salary limit that will be untouchable even when someone’s salary is seized for failure to pay a mortgage will be raised to a level 10% above the minimum inter-professional salary. In other words, whatever happens, such people would be left with 696.60 euros per month. This figure is increased by an extra 20% for each additional family member under their responsibility.
In practice, this means that if a bank has repossessed your home but you continue to owe the bank money, it will only be able to “take” the part of the salary you earn each month over this amount. For example, if someone earns 1,200 euros per month, the bank will be able to take 504.40 euros and leave them with 696.60 euros. If that person has a family member for whom they are responsible, the bank would have to leave them with 836 euros and 975 euros if that person was responsible for two family members.
Remember that in Spain, if someone has their home repossessed and the sale at auction of the property does not cover the mortgage, they continue to owe money to the bank.
WHAT HAPPENS IF I AM UNABLE TO PAY MY MORTGAGE?
We are living in unprecedented times and there is tension in the air. No-one can be sure of anything anymore and what was once unthinkable (not being able to pay the mortgage) is unfortunately becoming commonplace nowadays. With the constantly rising Euribor and increasing number of redundancies, paying the mortgage is moving away from being simply a chore towards becoming impossible. When we ourselves reach that situation, what can we do?
If you are unfortunate enough to be one of those people being suffocated by their mortgage and who cannot meet their monthly repayments, it is essential you read this before taking any decisions. The first think you need to know is that stopping to pay the mortgage would be an incredibly bad idea; far from ending the problem, you would only be aggravating it. From the moment you first fail to meet a repayment, the bank will remind you it is obliged to collect your debt and you can rest assured it will do so eventually. It will start out nice and politely at first but, over time, will eventually move from words to actions. If the situation is not resolved within a few months, it will ask the courts to initiate a process to auction your house and guarantee itself the collection of the money it lent you.
Be warned however, the auction of your property does not always put an end to the problem. If the bank is unable to settle your debt, you will continue to owe it money. To settle your mortgage, it is not simply enough to hand over the keys to your home to the bank. That system, which has grown exponentially in the United States, is not how things work in Spain. Here, when you sign a mortgage, you are subject to personal repayment. In other words, if the bank cannot cover the debt you hold with it by selling the house, it will continue to demand repayment of the remaining amount and could even partially seize your salary until it has recovered all the money it lent you.
THE PROCESS STEP-BY-STEP
Month one
After the first missed repayment, the bank will call you to rule out the possibility that there has been a misjudgment or error on either part. If you meet the repayment, plus the delay interest for the corresponding days since the repayment was due, the problem will end there.
Between months 2 and 5
If you accumulate between 2 and 5 months of missed repayments, the bank will do everything within its powers to make you pay. If it fails, it will make an appointment with you to negotiate changes to your mortgage conditions. It will ask you for proposals to pay less and will study their viability in an attempt to reach an agreement. Extending the term of the mortgage or paying the interest only for a certain time, are the most commonly used alternatives. If you have already reached this stage, you will now have several months’ worth of delay interest to pay, meaning your debt will have grown.
During this period, an important event takes place at the bank: if you do not pay, the entity must make provisions for your debt on its balance sheet. In other words, it must reserve monies equivalent to your credit, in accordance with regulations from the Bank of Spain. That money does not leave the bank but is “frozen”, let’s say. At that moment, you become a problem for the bank, whereas before you were simply a pain.
Month six
After, approximately half a year and once the bank has made written demands without a response from you, the bank will then consider recovery of the loan through ordinary channels as difficult. Therefore, the entity will execute your mortgage, which is nothing more than asking a judge to activate the guarantees you all signed in front of a notary public when you signed the mortgage papers. It is still possible for you to resolve the problem at this stage by paying everything you owe plus the delay interest, which will be adding up all the time.
After a year or a year and a half
The judge will set a date for the auction of your property. Until almost the very day they auction your property, you can still pay the debt and the corresponding delay interest (which will be quite considerable by now) and put a stop to the process. If you do not, you will reach a critical and painful moment: your home will be auctioned and you will be forced to leave.
THE AUCTION OF YOUR PROPERTY
Once the auction of your property has been appropriately announced, the auction itself will take place. The property will be put out to auction for the sum you owe to the bank plus the interests and other costs that may have been incurred to date.
It is possible that the property will not sell at the first auction, meaning the process will be repeated and could even be put out to auction with no reserve price for people to make whatever offer they want. If it does not sell, the judge will tell the bank what to do but the bank could keep the property even though your debt has not yet been settled.
If the property does get sold during these process, one of two things may happen:
1) the money obtained is more than the debt plus the costs, in which case the bank will settle, collect the debt and return the surplus money to you.
2) the debt is not covered, in which case the bank will keep the money from the sale but you will still have an outstanding debt to settle with your bank and it will come after you, and more importantly, after your guarantors should you have made use of any when you signed your mortgage. In this process, the judge must determine the best course of action to settle the outstanding amount. A decision may be taken to seize other assets that you own, those of your guarantors, part of your salary, etc. The objective of the bank will be to recover the money it lent you and that it was unable to recover through the sale of your home.
Credit: Fuster & Associates
Government cuts Notary fees, making it fractionally cheaper to buy a home in Spain.
The government has announced a 5% reduction in notary and registry fees on property deeds as part of a package of measures to reduce the deficit and stimulate the economy.
Notaries and Registrars are screaming blue murder at this attack on their earnings; whilst house buyers will hardly notice the difference the savings are so small.
How big a saving will that 5% reduction in notary and registry fees give the average home buyer in Spain? It will be between €35 for a property costing €150,000 and €45 for a home costing €300,000, according to calculations done by Idealista.es, a Spanish property portal. Almost insignificant then.
Notaries and registrars are furious. The latter’s’ fees are already down by 50% thanks to the slump in property transactions.
Credit: Mark Stucklin
www.spanishpropertyinsight.com
Note: From a buyers point of view they are unsympathetic but in order to assist in the clearance of the back log of property, the consensus is why increase property tax from 7% to 8% on 1st July, when in fact it would be better to scrap it and look elsewhere for savings!
The Spanish property Market is at an Impasse, says an expert.
What does the immediate future hold for the Spanish property market? Stagnation or another lurch downwards, according to one industry leader.
“The property market is under observation. Either we have touched bottom, or we are going to fall again.” That was Juan Fernández-Aceytuno, Managing Director of Sociedad de Tasación, one of Spain’s leading appraisal companies, speaking at the launch of stvalora.com, a new online valuation service.
Almost 4 years since property prices peaked, the market is still stuck in what some call a correction. “We are at an impasse, with everyone waiting to see what happens to the market. Few people will dare to say if we have touched bottom or just a bottle neck before falling again,” said Fernández-Aceytuno.
No rebound in property prices.
A rebound in prices is the one thing that Fernández-Aceytuno confidently rules out, despite the forthcoming increase in VAT that will put up the price of new homes. If anything he is more worried about a potential increase in interest rates forcing house prices down further.
Fernández-Aceytuno also points out that house prices tend to rise in good times and fall in the bad.
“Nobody has a crystal ball when it comes to prices, but at times when disposable incomes and credit have risen, prices have risen, and conversely, when these have fallen, so have prices.” In Spain today incomes are falling, there are more than 4 million unemployed, credit is scarce, and there is no sign of the situation improving anytime soon.
The Spanish property market recovery, when it comes, will be lead by a change of attitude in the sector, argues the boss of Sociedad de Tasación. “What the sector really needs is to regain trust and credibility,” he said, whilst admitting that some companies inflated valuations for mortgages by 15-20% during the boom. With prices down around 20%, that leaves some borrowers sitting on losses of 40%. “That’s what I would call suffering a bubble.”
Credit:- Posted on May 21, 2010 by Mark Stucklin
Rise in Spanish IVA
From the 1st July, 2 of the 3 categories of Spanish VAT will rise.
16% to 18%
7% to 8%
4% (is to remain the same).
What does this mean for the Spanish Property market which is already struggling to survive the current climate?
It will certainly increase the cost of buying and selling property and obtaining a mortgage in an already crippled market.
What is the government thinking?
Of course it will generate income for them but may push the market further backwards and no doubt they are hoping that prices will fall still further and generate increased interest from buyers and steady the industry but at what cost? More likely it will force more builders, promoters and agencies out of business with knock on job losses. The banks will come under further pressure and there will be many owners caught in the trap of having mortgages far greater than the value of their property causing an increase in repossessions as people struggle with their own economic crisis, losing jobs and putting more people on the bread-line.
Then there is the knock on effect for furniture and electrical companies and many other suppliers with steady drops in sales already recorded.
Buyers and Investors
No doubt there are people watching the situation with interest and for the general buyer now is the time to buy a property before the IVA increases and with so many properties available at low prices.
For the investor, they will probably sit it out and wait for rock bottom distressed sales and then pounce as the drop in price will by far outweigh the increase in purchase costs.
With the pound rising against the euro, buying a property is looking even more attractive.
Mortgages
As the banks continue to come under pressure they will negotiate on distressed properties in order to clear their overflowing books and are currently making mortgage offers which pre crisis would be unheard of.
If you have the money now is the time to buy Spanish Property.
Admin: 5 May 2010
Spanish Capital Gains Tax Relief on the Main Home
Does It Apply On Overseas Properties?
The Spanish gains tax regulations can provide relief on the sale of the main home for Spanish tax residents whose property qualifies as their habitual main residence. If you are 65 years or older the gain is tax free even if you do not buy another property. If you are under 65, the exemption only applies if you reinvest the proceeds of sale into a new main residence within a four year period, starting from two years before the sale. There is some confusion about whether this relief applies if your new main home is located outside Spain, so this article looks into this issue.
How does the relief work?
For the property you are selling to qualify as your main home, you need to have lived in it for a continuous period of at least three years from the date the property was bought or construction was completed. If you have to sell earlier because of a change of job, marriage, separation or death of a partner, the tax relief can still apply.
The relief is based on the proportion of the total sales proceeds reinvested in the new home. If it costs more than the sale price of the old home, the full gain is exempt. If only half of the sale proceeds are reinvested, then only half of the gain is exempt and the other half is taxable in the year of sale.
If the property being sold has a mortgage on it, it is the net sale proceeds (after deducting the mortgage) which need to be fully reinvested to escape capital gains tax.
The taxpayer must declare the gain on his Spanish tax return together with his intention to reinvest the proceeds into a new main home, or the relief will not apply.
Location of the properties
While the tax relief is only available to Spanish tax residents (as the property cannot be your main home if you are not Spanish tax resident), the properties themselves do not need to be located in Spain – either the residence you are selling or the new one you are buying.
So, if you move to Spain and sell your main home in your former country of residence (eg the UK) after you become Spanish resident, you may be able to avoid Spanish capital gains tax under these provisions. You have to purchase your Spanish home within the two years preceding the date of sale of the UK property or within two years following the sale. The purchase price of the Spanish property should be at least the net sale proceeds of your UK property for full relief to apply.
If the Spanish property costs less than the amount you received from the sale of your UK property, you will be charged tax in Spain on a proportion of the gain equivalent to the sale proceeds not reinvested.
Similarly, if you sell your main home in Spain and move to another country, reinvestment relief can still apply to the former Spanish home even though the new home is not located in Spain, provided that you and your family make this property your new main home. The purchase of the new home must take place within the relevant time limits and the full sale proceeds must be reinvested for full relief to apply. If the family members move overseas to the new home, but the taxpayer remains in Spain, the relief will not apply as the property has not become the taxpayer’s new main home.
An example of relief applying in such a case is given in a formal response to a query submitted to the Spanish tax administration.
Furthermore, it would be a clear breach of EU law if Spain did not allow the relief for reinvestment in a new home situated within another EU country. This situation arose in Portugal, and so the European Commission took action, as below:
“In July 2004 the European Commission invited Portugal to change its rules which prohibit the capital gains tax relief where the new main home is situated outside Portugal. The European Commission considers these rules to be discriminatory and contrary to the EC Treaty rules on the free movement of people, etc.
“Portugal did not amend its legislation within the 2 months time limit given by the Commission, so in January 2005 the Commission decided to refer Portugal to the European Court of Justice.
“On 26 October 2006, the European Court of Justice ruled that the restriction of the relief to the purchase of a primary residence located in only Portugal was an infringement of the fundamental freedoms guaranteed by the EU Treaty.
“As a result of the European Court decision, taxpayers should be able to benefit from the main residence relief in Portugal, provided the proceeds are reinvested in another primary residence within the European Union.”
By David Franks, Chief Executive, Blevins Franks
PROPERTY MARKET
Homebuyers still prey to uncertainty: Should I buy now, wait… or what should I do?
It now appears that home prices have not fallen as much as everyone thought, or at least according to the most important statistics. And that is not all, as the Government also believes that the sector will stabilise in the “near” future. How soon this will happen is not clear, although it will probably not be before the VAT increase, which will increase home prices by an average of 2,000 euros, and may take place before 2011, when the deduction for habitual residence purchases is to be abolished, a measure which will bring about a hidden increase of 8% in average home prices, according to calculations by economists.
Therefore, and bearing in mind that buying a home is the biggest investment that most people make in their lives, is it worth buying now, while you can still take advantage of the deduction and without being penalised by higher VAT? Or is it better to wait until 2011, when the era of low-priced homes may have finished? Should I sell? Should I lease with an option to buy? There are too many questions, and the answer to all of them is discouraging: “It depends”. The experts consulted by EXPANSIÓN did not have any general solutions, although they did have an answer for each question
Is it a good time to buy a home?
If the price of a property has dropped considerably, don’t take too long over your decision, because house prices have probably hit the bottom.
Bear the following in mind: “Prices can fall between 20% to 25% on average in the housing cycle”, and: “It is a good time to shop around carefully, because there is a wide range of homes for sale, and you will find some properties at a good price.” However, a word of caution if you want to buy a property on the coast – it would be better to wait as “prices are going to fall further”.
Is it worth buying a home before the tax hike in July?
This year is a good time to buy your first home: “If depreciation rates were between 4% to 5%, the VAT increase and the elimination of the mortgage tax deduction would cancel out the lower prices. But in fact I do not believe that house prices have fallen 4%”. They must have fallen “by least 10% to 15% (depending on the area) in 2009, and in 2010 they will probably drop by around -10% to 20%, which means that this year will be a good time to buy a home, and a terrible year for selling”.
Does it make more financial sense to wait?
“The longer you wait the further house prices will fall, although it will be harder to find great home buying opportunities. If you buy now it means that you will not be affected by the VAT rise from 7% to 8% in July. In addition, you will be entitled to a deduction of up 15% on the first 9,015 euros spent on mortgage repayments each year in your personal income tax return, even though you earn over 24,000 euros a year. However, this must be balanced against the fact that next year promises to be a very good one for homebuyers.
What is going to happen in 2011?
The tax rise and the government’s promise to abolish the mortgage tax deduction “are going to encourage homebuyers to buy this year, even though the market has not yet bottomed out”.
What about if I want to buy a property in order to lease it for rental income?
This is another good option. Buying a rental property is a good investment at the moment, as due to the crisis there is a very wide range of opportunities to choose from. Now is a good time for medium and long term investments, even though “prices are bound to fall even further next year” according to real estate analysts. “Anyone who buys now will see a good return on their investment in ten years´ time” advises Izquierdo.
Should I sell?
The experts recommend that “sometimes it is better to make a loss than wait for the situation to get better”. If you set a realistic sale price, the property will sell. However, you should remember that t the property’s current worth will almost never be as high as during the property boom. THREE TIPS
1. “The whole of 2010 is a terrible year for selling, and a good one for buying. The best time to buy is probably before the summer”, as that is when VAT goes up.
2. “Now is the time to look for low-priced homes. The longer you wait, the more prices will fall, but it will be harder to find great home buying opportunities”.
3. Look for properties selling at very reduced prices, because it is unlikely that they will fall any further. “It would appear that the homes for sale at reduced prices are the homes that are selling”.
Credit:- www.spainsolicitors.com