TO ALL EXISTING PROPERTY OWNERS / CLIENTS
Over 85% of non resident property owners sell their property within 5 years. Some sell to buy other properties, some have bought for investment & some sell for a variety of other personal reasons. In some cases a part owner dies, leaving the remaining owner to pay very heavy death duties to retain the property. In some cases this burden can actually force the sale of the property in order to pay these duties. Some people are able to circumvent this situation by holding powers of attorney over joint owners and thus sell the property without declaring the demise of the other party.
As a non resident the seller is automatically deducted 3% of the TOTAL SALES PRICE in retention tax. After selling a tax return should be made to the Spanish tax authorities. This may result in some or all of this retention being refunded, or it could result in capital gains tax becoming due at the rate of 18% on the difference between the recorded buying price plus legal costs of the purchase and the ultimate ACTUAL sales price.
Many people bought here in the past with an element of unrecorded cash commonly known as black money. This practice is quickly being eradicated.
This leaves owners who bought using this method exposed to even higher degrees of capital gains tax because the amount recorded in the purchase deed is much lower than the amount that was really paid. With the eradication of this practice, it makes the gap bewteen official purchase price and actual sale price even greater, this amount is then due to be paid as capital gains tax, at 18%.
Some examples.
A small apartment bought 3 years ago for 70,000 including costs with 50,000 recorded in the escritura. Today this would probably fetch around 100,000.
The retention tax would be 3% of 100,000= 3000
The capital gain would be 18% of 50,000 = 9000
3000 would have already been paid leaving 6000 to pay.
Total loss to taxes 9000
Even supposing that the ACTUAL purchase price was recorded in the escritura, at price 70,000,
Sales price once again 100,000,
Retention tax still 3000
Capital gains tax 18% of 30,000 =5400
3000 already paid, 2400 to pay
total loss to tax 5400
In the event of the death of 1 owner, say part of a couple, the amount of duty payable on the above property would be around 10% of the whole value, so in this case 5000 if bought with an element of black money, or 7000 if bought totally legally. If you had to sell to cover this cost you would be faced with combination of BOTH the above elements. So total loss to tax:
14,000 if bought with element of black money
12,400 if bought totally legally.
This situation is actually worsened by the possiblility of inheritance tax being applied in the UK. The double taxation treaty offers no protection from this because the 2 taxes, although both driven by death are in fact different. One is inheritance tax, the other is death duty. Although UK tax thresholds for this have now risen, and only applied on the second death (subject to limits) it is worth considering.
The examples above can be used to calculate your own position regarding exposure to some or multiples of these taxes.
The purpose of informing you all of this is not to spoil your day or cause you to worry but to offer you an alternative solution that can eradicate ALL of the above taxes. It is 100% legal, and has been questioned & accepted by notaries & lawyers here, and is becoming more widely used.
There is of course a cost to this, but the costs are much lower than your exposure.
Some example property values and set-up costs are below.
PROPERTY VALUE SET-UP COST
100,000 4,500
120,000 5,000
150,000 6,500
170,000 7,000
200,000 7,750
220,000 8,500
250,000 9,000
280,000 11,000
300,000 12,000
320,000 12,400
350,000 13,000
380,000 13,600
400,000 14,000
420,000 14,400
450,000 15,000
480,000 15,600
500,000 16,000
550,000 17,000
600,000 18,000
650,000 19,000
700,000 20,000
750,000 21,000
800,000 22,000
850,000 23,000
900,000 24,000
Any purchaser can also take advantage of this arrangment from the outset and avoid paying either the 5% igic on the initial purchase from a constructor or the 6.5% tax levied on resale properties.
If a purchaser bought from somebody already within this arrangment they would pay no taxes at all on the purchase. This would make the present owners property MUCH more attractive to any prospective buyer.
So whether you are thinking of selling outright, selling to buy something else, or want protection from future inheritance tax and sales taxes & want to explore this further contact me.