I bought a property in spain in 2004 for E 30,000. I did work…

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I bought a property in spain in 2004 for E 30,000. I did work…

I bought a property...

I bought a property in spain in 2004 for E 30,000. I did work on it roughly doubling its size at a cost of E 45,000. I have all the receipts. I now want to sell. I had understood that the cost of the improvement work would be taken into account before calculating capital gains tax. I am now told that this has changed.
a}Is this correct and
b}if so is the change retrospective - the work was completed in May 2007.
c)What is the rate of CGT?
I shall be using the proceeds of sale to improve a further , derelict, property in the same village bought around 2005.
d} Is there any prospect as a non resident of rolling any CGT liability into the new property?

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Answered in 10 minutes by:

9/21/2011

UK Tax Professional: Tony Tax, Tax Consultant replied 9 years ago

Tony Tax, Tax Consultant

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Satisfied Customers: 16,712

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Hi.

Are you looking for advice on the UK tax position or the Spanish tax position or both? Who told you that improvement costs are not deductible? Were they referring to the Spanish tax or UK situation?

Customer reply replied 9 years ago

Sorry - I thought I was on a specifically spanish tax site and then realised too late that it seemed to be a uk site. I hope nevertheless you can help. My question is re the spanish position. Basically, if the improvement costs are taken into account I won't have made any profit, so it's a fairly crucial issue.

I am a lawyer, but not a tax lawyer. the purchaser is a colleague. He is the one who has just told me this, from his own researches. He is referring to what he understands to have been a change in the spanish law. But he is not a tax lawyer either, and neither of us has knowledge of the spanish tax system.

UK Tax Professional: Tony Tax, Tax Consultant replied 9 years ago

Thanks.

Leave this with me for a bit and I'll get back to you. Is your friend resident in Spain or the UK? Is the property owned by him personally or by a company he owns? What was the exact date of purchase in 2004? To what use was the property put during the period of improvement and afterwards?

Customer reply replied 9 years ago

Ok. ,I was trying to simplify matters but here are the facts:

I am the owner of the property in Spain. It is a holiday house owned by me personally and not by a company. It has never been let out and always used for myself and my family. I want to sell it now to a colleague. We are both British and non resident in Spain.

Now that I have checked the documents, the precise details are as follows -

There were originally 2 properties and 2 escrituras. A village house with a barn next door. I bought them both with my partner on 28/5/04. The purchase price was E24,000 for the house and E 6,000 for the barn. The escrituras were registered on 30/11/04 and 18/4/06 respectively (there were complications re the barn escritura that took time to resolve). My partner and I then owned each property in our joint names.

In 2006 the barn fell down. We got planning permission to build an extension to the existing house in its place. The work began in January 2007 and ended in about May. The last payment to the builder was on 10/8/07. The total costs were about E45,000.

In the meantime I had split up with my partner. On 10/7/07 the two properties were formally joined together in one escritura and transfered into my sole name, in a single transaction. The recorded total value of the properties was E30,000. My partner's share in both properties was transfered to me for the sum of E15,000, represented by transfer to him of property of equivalent value in the UK. On 30/8/07 a single escritura in my sole name was registered.

I have now totally confused myself as to how any CGT would be calculated, as I have owned the property since 2004, but only in my sole name since 2007 - by which time the building costs had already been incurred. Help!!

UK Tax Professional: Tony Tax, Tax Consultant replied 9 years ago

Wow, what a story. That serves me right for asking too many questions. I got both barrels!!

I'll take a look at it and get back to you. I have some experience of Spanish tax having dealt with some expatraite clients so I should be able to find what I need.

Customer reply replied 9 years ago

Sorry....!

UK Tax Professional: Tony Tax, Tax Consultant replied 9 years ago

How much do you expect to sell your Spanish property for?

Customer reply replied 9 years ago

Sorry for delay - that's the difficult part as I need to know what my tax liability is likely to be. The figure I've been working on is about E75,000.

Customer reply replied 9 years ago

Thanks - can you just tell me on what basis only half the 45,000 euros is allowable - is that the normal rule re improvement costs?

UK Tax Professional: Tony Tax, Tax Consultant replied 9 years ago

I've divided both the original cost and improvement cost figure by two since the property was jointly owned. You then bought out your partner for 15,000 Euros.

Tony Tax, Tax Consultant

Category: UK Tax

Satisfied Customers: 16,712

Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.

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UK Tax Professional: Tony Tax, Tax Consultant replied 9 years ago · Answer 1

Thanks.

(a) I'm not aware that improvement costs are not tax deductible but you have to have the invoices for the work done to be able to claim them.

(b) See (a) above

(c) 19% with 3% being withheld by the buyer who passes it to the tax office. You then have 16% to pay on the gain.

(d) No. The property you are selling has to have been your main home.

There appears to be an allowance for inflation to reduce the gain but I cannot help you with the calculations as I'm not a Spanish tax expert. You ought to seek out some reliable local tax advice.

Based on the figures you provided, your cost for CGT purposes will be half the 30,000 Euros plus half the 45,000 Euros plus 15,000 Euros, a total of 52,500 Euros.

Let me know if you have any queries.

I bought a property in spain in 2004 for E 30,000. I did work…

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