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bigduckontax
bigduckontax, Accountant
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I`m ex- living in Spain. I own a house in the UK which I

Resolved Question:

I`m ex-***** *****ving in Spain. I own a house in the UK which I intend to sell next year.
I want to avoid paying capital gains tax in Spain or in the UK if possible. I lived in the house continually from 1976 until 2013. My daughter and her family live in the house and I have a studio flat there where I stay when I`m in the UK.
I`m thinking I should give up Spanish residency and return to the UK before selling.
What would be your advice.
Submitted: 10 months ago.
Category: Tax
Expert:  bigduckontax replied 10 months ago.

Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.

Only 2.5 / 41 [6%] of the gain, you are assumed to be in residence for the last 18 months of ownership even if this is not the case) will be subject to Capital Gains Tax (CGT). From this you can deduct your Annual Exempt Amount (AEA) of 11.1K to offset the tax. If you received rental for the occupation by your daughter you may well be entitled to Lettings Allowance (LR) up to 40K also. Under Spanish taxation any gain made is liable to income tax as savings income. There is a Double Taxation Convention between the UK and Spain which precludes taxation in both jurisdictions. This is achieved by means of tax credits, the tax paid in one country being allowed as a tax credit against a liability in the other. The Convention does not protect you from differences in rates of taxation.

Where you reside will not make any difference in this matter.

I do hope that you find my reply of assistance.

Customer: replied 10 months ago.
Hi Keith.
Thank`s for your reply.
what i`m thinking is, if I give up my Spanish residency before the end of this tax year and return to the UK and sell during next year I shouldn`t be liable to pay tax on the sale in Spain. I could then re-apply for residency when and if I decide to.
Expert:  bigduckontax replied 10 months ago.

That would seem a good idea and probably avoid Spanish taxation on the gain. However, this is an UK tax advice site so I would be inclined to consult a Spanish tax practitioner just to make sure.

There is an error on my original response, paragraph 2 line 3 delete 'Allowance' insert 'Relief.'

Please be so kind as to rate me before you leave the Just Answer site.

Customer: replied 10 months ago.
Thank`s for your reply. I don`t quite understand what tax I would have to pay in the UK.
The property has been valued at £350,000 but after the mortgage has been settled I should end up with about £200,000.
Expert:  bigduckontax replied 10 months ago.

At this stage I cannot help you as I have no data as to the acquisition cost. This would be the purchase price plus purchase costs including Stamp Duty plus any improvements eg installation of double glazing, central heating, extensions, but not routine maintenance. The difference from 350K would be your capital gain, but as I told you only 6% is exposed to CGT and there is still the AEA off 11.1K to deduct. Mortgages do not form part of any CGT computation.

Customer: replied 10 months ago.
Does the AEA mean 11.1k will be deducted for each year i`ve lived in the house?
Expert:  bigduckontax replied 10 months ago.

Unfortunately no, the AEA is a non cumulative concession. In HMRC speak it is an 'use it or loose it' benefit.

bigduckontax and other Tax Specialists are ready to help you
Customer: replied 10 months ago.
Hi Keith.
I`m sorry for the delay in getting back to you. I`ve been travelling back to Spain for the last 3 days.
One final question if I may.
If the purchase price plus improvements was £150k and and it sold for £360k can you give me a ball park figure for the CGT?
Expert:  bigduckontax replied 10 months ago.

360K - 150K = 210K gain less 11.1K AEA leaves 198.9K @ 6% [11.93K] exposed to CGT. Worst case scenario is a bill of a tad under GBP 250 [234]. This assumes that your daughter paid no rent. Better than a poke in the eye with the proverbial sharp stick!

Expert:  bigduckontax replied 10 months ago.

Thank you for your support.

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