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Sam
Sam, Accountant
Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I have Spanish residencia and have been submitting my tax

Customer Question

I have Spanish residencia and have been submitting my tax return ( Renta ) to the Spanish tax Authorities (Agencia Tributaria since 2007. Last year I received an inheritance being my share from the proceeds of the sale of his house in the UK which was left in a trust. The share left to my step siblings was used to fund care home costs for my stepmother. My Spanish Tax Advisor informs me that I should pay capital gains tax in Spain but a Spanish Tax Solicitor has quoted the following"As the property is in England he theoretically will need to declare the gain in England and pay the CGT.Whatever he has paid in England through the double taxation agreement will be compensated in Spain.I wish to avoid double taxation so your advice would be much appreciated. Regards, ***** *****

Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi

Thanks for your question

Your Spanish tax adviser is correct - you need to declare any gain in the UK, suffer any tax arising, and then through your Spanish tax position, declare the gain again, plus the UK tax suffered.

However, I would first suggest that you contact the solicitor that handled the will and the closing of the trust, as I would have expected to see any tax arising to be dealt with through this process (as the whole gain position would have led to taxation, not just your share) so the trustees should have handled this whole position.
I do not want you to suffer tax twice on this income in error - just from the UK perspective, so make those enquiries first.

Thanks


Sam

Customer: replied 2 years ago.

I have received the following information from my solicitor:-


Further to our conversation my understanding is that Mrs. Brant had right to occupy the property constitutes an n accordance with the declaration of trust. She was also the sole legal owner and as such this constitutes an interest in possession..


 


As Mrs Brant was living in the property when it was sold she is able to claim that it was her principal private residence and therefore no capital gains tax is payable.


 


Your interest was in the proceeds once the property was sold.


Do feel free to ask your IFA to liaise with us.

Expert:  Sam replied 2 years ago.
Hi

Thanks for your response

They have not addressed the real issue.
That the property was in trust - it not whether Mrs Bryant had any tax liability on its sale - as it ceased to be considered her property as soon as it was place in trust (but became the trusts asset)
So have the trust dealt with the winding up of all tax considerations before releasing the funds to the beneficiaries?

That's the question that needs addressing -

Do come back to me when you have established this position.

And I have to ay this position throws up further concerns, if Mrs Bryant continued to live there - then was she paying rental income to the trust - as she then had made use of the property that was no longer deemed to be legally hers. And should have either being aid rental income or subject to pre owned asset tax.

Perhaps they could clear these matters up, as this does not appear to have been handled correctly, at face value.

Thanks

Sam

Expert:  Sam replied 2 years ago.
Hi

Just an after thought - if this has been handled correctly - then the capital gains position has been dealt with and there is no further UK liability on you, as there would be no gain between the date of death and sale (I would have imagined)

Thanks

Sam
Expert:  Sam replied 2 years ago.
Hi Graham

Did you establish whether the tax position had been dealt with through the estate/trust

Thanks

Sam
Customer: replied 2 years ago.

My solicitor advises that as the house was my father´s wife´s primary residence no capital gains is due. My concern is whether the proceeds are liable for any form of taxation in the UK.

Expert:  Sam replied 2 years ago.
Hi Graham

Whilst that might be true, you originally advised that it was your fathers property and he placed it in trust and that Mrs Bryant just had a right to occupy.

Private residence relief is only ever due on the property if the owner lived there - she did not own the property so does not attract ant exemption of capital gains - as the property then became the trusts asset.

So whilst the proceeds would not usually be liable to any further taxation, unless the trust has paid the appropriate taxes (which you advise not) , then the advise your solicitor has given you, seems wrong - as tax has to be paid somewhere - as it was
1) not your main residence - nor your siblings, and not owned by you
2) was the mai9n residence that Mrs Bryant resided at - but she never had any ownership of the property, from what you advise, so cannot qualify for any relief on the fact she lived there.

I am concerned that the advise you have been given and the fact no tax has been considered within the disposal of this asset in the trust is going to prove a very costly mistake for you and your siblings, some years down the line when HMRC discover the mistake.

I urge you to question your solicitor further on the points I have raised - to put your mind at rest

Thanks

Sam

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