Costa Blanca Buyers Guide | Legal Issues for Costa Blanca Buyers
By Colin Scriven
Hamiltons of London
A very good article but there are some points that Colin does not mention concerning the sellers obligations. I will agree that it is supposed to be a buyers guide but should he not be advising the sellers as well?
Capital Gains Tax:
Currently CGT (Capital Gains Tax) in Spain is 18% and the retention is 3%.
All UK citizens are obliged to declare income from overseas investments including CGT and rental income.
The UK CRS recently decalred an amnesty for such declarations going back 10 years. The British banks resisted revealing all customers with offshore accounts and other foreign interests but in the end the CRS won a court case and the information was provided to them.
Article:
The UK Tax Amnesty for Spanish Property Owners
Now there is a double taxation treaty covering this and taxes paid in Spain are deducted from the income or capital gain before the tax is applied.
However, there is absolutely no mileage in paying the 3%, in the case of a sale, and leaving it like that.
The tax has to be properly liquidated and a crtificate issued by the Spanish tax authority so that the rebate in UK can be claimed.
Reducing Capital Gains Tax:
The days when buyers declared very low values on an escritura are long gone. Althought the obligation is to declare what was actually paid there is no way that the taxman can prove this. Nevertheless, amounts are often disputed and a revison required and the generally accepted value is 1.7 times the catastral value.
Obviously now it is vital that the buyers declare the full amount paid but this leaves the sellers, who bought long ago, with a dilemma but this is easy enough to resolve.
Declaration of New Works:
Previously it was necessary to have a bill with IVA and the building licence for a declaration of new works. I cannot imagine that the Spanish taxman would declare un amnesty because he would never admit that things had gone so badly wrong with his authority that one was required, so it is probably an unofficial one.
All this means that the seller can easily put everything right, take away a reasonable profit and pay little tax, either in Spain or the UK.
As the capital gain depends on the difference between the buying and the selling escritura, making an interim declaration of new works reduces the capital gain and the tax obligation.
Normally, extending a building or constructing a swimming pool without a building licence would result in fines or even a demolition order from the town hall but anyone declaring new works these days gets away with that due to the 4-year rule.
Consequently all that is necessary is an inspection of the property by an architect and a certificate to say that new work has been carried out and he certifies it as being more than 4 years old.
Making the Declarations and Paying the Tax:
When the property is sold the Notary deducts the 3% retention and remits it to the taxman. The seller should then immediately make the liquidation. There may be a little more to pay but generally not. Working it all out over a long period is complicated because the law has changed over the years. Some periods have a time-based deduction.
This liquidation is then presented to the UK CRS, the capital gain calculated and the tax alredy paid in Spain deducted - leaving everything squeaky clean!
The big danger for UK citizens is that the Spanish taxman informs his UK counterpart. I have not heard recently that this has happened regarding a property sale but it has certainly happened in the case of undeclared rental income.
WARNING: Don't go rushing to the CRS and confessing otherwise you could really get stung for tax if you don't have the Spanish recipt. Declare everything in Spain first! This is particularly important in the case of rental income where you still own the property.
If the Spanish taxman informs on you then he knows all about it. If you pay the UK tax you have no Spanish receipt to claim the reduction, then the Spanish taxman could hit you with it again.
It is a whopping 25% on the gross, it can go back 5 years, be increased with fines and the title could be embargoed.
CAPITAL LOSSES: There are no rebates for losses but these can be carried over from year to year to compensate for gains, both for CGT and rental income.
Homefinder
UK Tax Amnesty for Spanish Property Owners 
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