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I sold my Spanish property in September 2012 and have

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notified HMRC and asked for...
I sold my Spanish property in September 2012 and have notified HMRC and asked for a tax return form . While I was talking to them they said I could only claim expenses to offset taxes that were qouted in the contract. My Spanish solicitor witheld funds to cover Spanish Tax .
My Spanish accountant now tells me this in insufficient and I must pay around an additional €26000. They ask me in the last paragraph of their letter if I wish to pay this .Do I have any choice?
I find this a strange remark ,so my question is really five fold.
1. Should I pay this to Spain ?
2. Can I opt to pay it in the UK as there is a reciprical agreement.?
3. Can I just refuse to pay it which , of course then increases my liability here?
4. As HMRC have told me I can only deduct expenses as per the contract how can I use this amount to offset my liability in the UK?
5.Will it make any difference to my overall liablity if I pay it in one country as opposed to the other?
Submitted: 5 years ago.Category: UK Tax
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Answered in 1 hour by:
4/13/2013
UK Tax Professional: Tony Tax, Tax Consultant replied 5 years ago
Tony Tax
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 15,984
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi.

1 As you are not a Spanish resident, the purchaser's lawyer is obliged to withhold 3% of the sale price which is paid to the Spain government as a payment on account of any CGT liability the seller (you) has in Spain. If you have no CGT liability in Spain, you can claim the 3% back. If your Spanish solicitor has told you that you have a CGT liability of £26,000, you have to pay it. If you don't, the Spain government will go to court in the UK to get it. I cannot explain the Spain lawyer's relaxed language though I suspect he has had other UK clients who have "done a runner" so to speak.

2 You cannot opt to pay tax only in the UK. Any CGT you pay in Spain will be deductible from your CGT liability in the UK, if you have one.

3 You cannot refuse to pay it. That would be breaking the law. The property is in Spain so the Spanish government can have any tax system it likes governing property on its land.

4 I am not sure what HMRC mean by the comments they made. I wouldn't trust it in any event. You or your UK accountant should submit a calculation of the gain or loss based on UK tax principles (basically, sale proceeds, less costs of sale, purchase price, improvements costs, costs of purchase). The calculation of the gain for Spanish tax purposes may be slightly different.

5 As I said earlier, you cannot pay only in one country. Spain charges CGT on non-residents and as a UK resident, you are liable to CGT in the UK on gains wherever in the world they are made. If you didn't have a CGT liability in Spain, you would pay more CGT in the UK as there would be nothing to offset, obviously.

Take a look here and here for information on CGT in Spain.

I hope this helps but let me know if you have any further questions.
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Customer reply replied 5 years ago

Well I sent a follow up question to you for which I seem to have also been charged and I have not had a reply. As this is the first time i have contacted an expert on this site I have asked that they clarify what I have been charged. I shall agree to pay you once,but I think i need to speak to an HMRC expert to clarify the situation on question 4

UK Tax Professional: Tony Tax, Tax Consultant replied 5 years ago
You opened up another question instead of following up here. I'll send a message to just answer to refund the other question and copy the answer here.
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UK Tax Professional: Tony Tax, Tax Consultant replied 5 years ago
Hi.

Here is my answer to the other question which is really a follow up to this one:

The UK tax office will only be interested in the sale of the property, not the furnishings unless there were individual items sold for more than £6,000. Take a look at HS293 here for the CGT rules on chattels.

A notarised document from your accountant or lawyer which splits the proceeds between the property and the furnishings will suffice for HMRC purposes. They may not even ask to see the contract of sale but it would make sense to be ready if they do.

Let me know if you have any further questions.
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