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bigduckontax, Accountant
Category: Tax
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My recently retired friend is planning to sell her UK property

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My recently retired friend is planning to sell her UK property and move to Spain to buy a small villa. She wonders as to what the tax challenges might be as the property purchase in Spain will probably leave a substantial sum of just under £100,000 in the UK, which may be left on bank deposit. She does not want to transfer this residual amount to Spain but is considering leaving it in the UK or possibly Channel Islands, Isle of Man or Southern Ireland. There is no intention of drawing any income on a regular basis but she may want to dip into it occasionally. She feels her UK State Pension and a small Annuity will provide sufficient income for her to live on for the next few years
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Assuming that her UK property is her sole or main domestic residence Private Residence Relief (PRR) applies and her sale, although it does attract UK Capital Gains Tax (CGT) on any gain made the PRR relieves that at 100%. Spain is more complex. Firstly there is tax payable by the buyer on acquisition. Euroresidentes gives the following advice: 'Re-sale purchase tax: House buyers of re-sale property (as opposed to brand new) are required to pay the Impuesto de Transmisiones Patrimoniales - Transfer Tax - which is now 8% in the Region of Murcia and 10% in Comunidad Valenciana. New Properties purchase tax: buyers of brand new houses in Spain are liable to paying 10% IVA (VAT) if the house is finished or is being built at the time of the purchase, plus an extra 1.5% stamp duty tax in Comunidad Valenciana or 2% in the Region of Murcia. However, if you buy land in Spain, commercial premises or parking spaces in garages, then the VAT payable rises to 21%.' Her UK State Pension is paid in the UK and taxable there. As we all know it is paid gross. The same will apply to her annuity which presumably is being taxed at source. She can certainly get the former paid to a Spanish Bank and as she is within the EU will continue to benefit from annual pension increases. If she leaves her funds in the UK then any interest received will be taxable. On leaving the UK for Spain she should send a Form P85 to HMRC. On receipt they will classify her as non resident for the tax year following her date of departure and furthermore split the leaving year into two portions, one resident and one non resident. The form provides for a refund of any overpaid tax in the split year. If you spend more than 183 days in Spain in any one tax year then you will be liable to Spanish taxation on your world wide income, exactly the same as the UK rules. Recent changes mean that you have to disclose all your assets and income sources to the Spanish tax authorities. Under the Double Taxation Convention between the UK and Spain you cannot be taxed in both jurisdictions on the same income stream. This is achieved by means of tax credits, the tax paid in one country being allowed as a tax credit against the liability in the other. Putting her money in a tax haven would appear an exercise in financial futility. I do hope that I have given you some indication of her tax position following her proposed move. There are, of course, thousands of ex-pats in Spain so local professionals are well up to speed in these matters as indeed are some UK accountancy firms.