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TaxRobin
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My Mum (85 years old) has decided to transfer her Spanish holiday

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My Mum (85 years old) has decided to transfer her Spanish holiday home to me. The value is around £500k. I understand that in addition to Spanish Taxes on the transfer (which will have to be paid at the point of transfer) there may be an element of IHT liability, should my Mum not survive 7 years from that date.
Q1 - if this happens, would it count as double-taxation and therefore be eligible for some relief in respect of the taxes already paid in Spain?
Q2 - The longer-term plan is to sell the property on my retirement, and purchase property in Malta. How would UK CGT be calculated when that happens, and would that be offset by the Spanish CGT which would need to be paid.
Submitted: 1 year ago.
Category: Tax
Expert:  TaxRobin replied 1 year ago.
HelloQ1 - if this happens, would it count as double-taxation and therefore be eligible for some relief in respect of the taxes already paid in Spain?The taxes paid should your mother not survive are Inheritance Tax and not the same as the taxes paid on transfer in Spain. They are 2 different taxes so no double taxation relief would be applicable unfortunately. Unless Spain charges a specific CGT on the gift she cannot claim double tax relief.Q2 - How would UK CGT be calculated when that happens, and would that be offset by the Spanish CGT which would need to be paid.Yes, you would pay CGT in both so you would be allowed credit for the tax paid in both countries should you sell.You pay CGT in the UK if you sell overseas property. You can usually claim Foreign Tax Credit Relief when you report your overseas income in your tax return.You may not get back the full amount of foreign tax you paid. It depends on how much tax you actually pay and if the UK rate is lower then you cannot take a credit for the entire foreign tax paid.If my answer addressed your question please rate below or above (let me know if you have difficulty as I believe the system changed).Rating lets Just Answer know you were assisted and credits me for my time.
Customer: replied 1 year ago.
My understanding is that the spanish tax on the transfer is based on the fact that the transfer is to a legal heir to her estate - so it is Inheritance tax to an extent - does that alter the answer to Q1 at all?
Expert:  TaxRobin replied 1 year ago.
No, it would have to be capital gains tax for your mother to use double tax relief in the year of the transfer.Also there would not be IHT in the UK unless your mother passed away prior to the 7 years. The tax type must be equal to the tax type for the relief to be applicable.
Customer: replied 1 year ago.
OK - going on to Q2 - my question was how would the CGT be calculated on my eventual sale of the property? Or more specifically, how would the taxable capital gain be evaluated?
Expert:  TaxRobin replied 1 year ago.
It’s the gain you make that’s taxed, not the amount of money you receive.Should you sale you use the market value when your mother transfers to you against what you actually receive for the property. If the property goes up in value before you sale then you will be paying tax on that amount.You can deduct certain items such as costs to sell which would lower your gain.
Expert:  TaxRobin replied 1 year ago.
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Customer: replied 1 year ago.
OK - so that implies we need to work out a market valuation of the property at the time I gain ownership? What would be an acceptable method of doing that for HMRC? Also how will the effect of changes in the Euro/Sterling exchange rate affect this?
Expert:  TaxRobin replied 1 year ago.
The exchange rate will not effect the transfer.You use the rate on the event dates.The value of the property on the date of gift should be listed in the documents from Spain but you can request a professional appraisal at that time.HMRC will most likely accept your valuation as long as it is in keeping with what a stranger would have paid your mother instead of her gifting to you.
Customer: replied 1 year ago.
I rather understand that the documentation for the transfer will show the Cadastral value, which is maintained by the local authority (rather like the old rateable values in the UK), rather than the full market value, so I suspect we will need to get an estate agent to provide one. So - if I have understood you correctly, the capital gain will be the increase in the Sterling value of the property from when I acquire it and when I sell it - even if I never hold it in Sterling?
Expert:  TaxRobin replied 1 year ago.
That is correct.
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Experience: International tax
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