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UK residents are subject to tax on their worldwide income and capital gains.
This means that even though you paid tax on the sale of the property in Spain, the sale may also be subject to UK capital gains tax (CGT) rather than income tax. However, your UK tax liability would be reduced by the tax you have paid in Spain so you would not be taxed twice on the same capital gain.
Residential property sold in 2016 is subject to UK capital gains tax at 18% for gains within the basic rate band, and at 28% thereafter. These rates are lower than the rates of tax on income. You are able to deduct the cost of the property, costs of selling the property, and certain improvements you have made to the property from the proceeds in order to calculate the capital gain. You also have an annual CGT exemption of £11,000. If you have ever lived in the property as your main home further reliefs may be available.
At this point my advice to you is to engage a UK accountant or tax advisor to help you respond to this letter you have received from HMRC. This is because:
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