Capital Gains | C&D Solicitors

TAX CONSEQUENCES OF BREXIT FOR BRITISH PROPERTY OWNERS IN SPAIN

Written by Gustavo Calero Monereo on 11 December, 2020. Posted in andalusia, Brexit, Capital Gains, conveyancing, costa del sol, ducth speaking solicitor, Income tax for non residents, lawyer, legal advice, property law, swedish speaking solicitor.

TAX CONSEQUENCES OF BREXIT FOR BRITISH PEOPLE IN SPAIN — Due to the Brexit there are many tax consequences for British citizens in Spain

We are near the end of the transition period established within the BREXIT for British citizens resident in Spain, which ends on 31 December 2020. There are many tax consequences for British citizens in Spain but for now we are only going to focus on British citizens with assets in Spain. For example pensioners or owners of a second home. From the perspective of trade or the movement of British citizens in Spain for work reasons, the tax and bureaucratic consequences of Brexit are higher, even though we will not cover that in this article. However, we will also briefly address the process to obtain Spanish residency. This because during the past few months we have witnessed many police stations becoming overwhelmed and unable to meet the many requests for appointments for British citizens and their family members to obtain a residence permit in Spain. This procedure was approved as part of the transition period set to end on the 31st of December 2020.

Over the last few weeks of 2020, it has been impossible for many British citizens to make an appointment at the police station in the province where they live and this also applies to the province of Malaga in Andalusia. This has led many British citizens resident in Spain or about to move to Spain starting 2021 without a residence permit.

What will be the situation of British citizens resident in Spain after BREXIT?

Well, these British citizens will have to apply for a residence permit after the final Brexit on the 1st of January 2021, just like any other citizen from a third country outside the European Union. We recommend that first of all these citizens register with their city hall as soon as possible and also request a S1 form from the United Kingdom to prove that their healthcare costs in Spain will be covered by the United Kingdom. After this, the easiest thing to do is to contact a law firm or administration company that can advise you and help you with the process, as it will be complicated to do it on your own. It is very important not to delay and do this as soon as possible, even though it is true that there is currently a lot of uncertainty about the procedure in question, as the negotiations with the European Union remain open.

How will the status of British citizens change after 1 January?

British citizens will be able to travel to Spain and stay for up to 90 days within a 6-month period, consecutive or not, without having to obtain a visa. They could even be required to prove their financial capacity to cover their stay in Spain, as is the case with travellers from countries outside the European Union. If they wish to stay longer, it is very likely that they will have to apply for a visa or work permit, even though this has not been defined yet since the negotiations remain open.

What will happen with the British driving licence?

From 1 January 2021, the general regulations will apply and British driving licence will be valid to drive in Spain for six months counted from the owner’s entry in Spain or from the date that legal residence is obtained. They will need to exchange their British driving licence for a Spanish one to continue driving in Spain after those six months.

How will Inheritance Tax change after Brexit on the 1st of January 2021?

As we explained in detail in an earlier article about inheritance tax, fortunately, from 1 January 2019, citizens not resident in the European Union are able to obtain the same tax benefits and bonuses for Inheritance Tax as European citizens. Therefore, the application of Inheritance Tax and its consequences would not change for British citizens.

Potential future Inheritance Tax when buying a home in Spain

When considering the purchase of a home in Spain, as the regulations applicable to this tax depend on the autonomous community where the property is located, a very important matter is to consider which autonomous communities have a higher and a lower inheritance tax, before making such investment(s). For instance, British nationals are the main buyers of homes in Spain. Alicante (Valencian Community) and Malaga (Andalusia) are the two main locations for foreigners to buy a home in Spain but. However, when it comes to Inheritance Tax, there are big differences between one community and the other. The Valencian Community has the third highest Inheritance Tax in Spain, while Andalusia has the third lowest, according to the General Economists Council of Spain, in their taxation study for 2020. This means that, when thinking about that tax, Malaga has a much cheaper rate of Inheritance Tax than Alicante.

What happens to taxes on profits obtained from renting out my home in Spain?

If you bought a home in Malaga as an investment, for instance, and you use it for holiday rentals as a citizen of the European Union, the profit obtained from such rental would be taxed at 19% through their IRNR income tax for non-fiscal residents with a house in Spain. Many expenses can be deducted: mortgage interest, repair and maintenance costs for the property, electricity, insurance, etc. However, once you are considered a citizen not resident in the European Union, it will be taxed at 24% and no deduction for property expenses may be applied.

Estate Tax or Wealth Tax on my properties located in Spain

Estate Tax or Wealth tax also apply to assets and rights that non-residents have in Spain. As this tax has a minimum personal exemption threshold of 700,000 euros over the minimal fiscal value, all non-residents -in the EU or outside it- with assets of a lower value would pay nothing. The main difference in terms of EU and non-EU citizens lies in the fact that EU citizens can apply the regulations of the autonomous community where most of their assets are located. However, non-EU citizens would have to follow national regulations instead of those of the autonomous community where the assets are located. If we compare the tax rates in Andalusia to the national ones in terms of estate tax, the national rate of estate tax is somewhat lower. Therefore, applying national regulations does not always entail a greater tax liability.

The actual impact of that tax is non-existent for most non-residents due to the minimum fiscal value of 700,000 euros applied per person. This is why it is recommended that, if you are thinking about luxurious purchasing a property in for example Marbella on the Costa del Sol, it might be interesting to put the property in more than one name to profit from this exemption. Still, estate tax could have a high impact for those with high-value assets in Spain or considering the purchase of luxury properties.

How will Brexit affect the sale of my home in Spain?

The tax rate on capital gains obtained from selling the property stays at from 19%. The withholding (down payment) of the Capital Gain Tax that a buyer must apply to a non-resident seller to pay the amount at the Tax Agency in Spain will continue to be 3% of the purchase price. This percentage is the same for EU citizens and non-EU citizens.

Will Brexit affect the ITP transfer tax on the purchase of a home in Spain?

No, it will not. The property ITP transfer tax paid in Spain for the purchase of second-hand homes do not vary for EU citizens and non-EU citizens, for which reason, from 1 January 2021, it would not lead to greater expenses for British people. The same counts for the 21% VAT tax and documented legal acts (AJD tax) paid for new off-plan properties. The ITP tax depends on the autonomic region. For instance, in Andalucia a house buyer pays 8% ITP transfer tax over the purchase price up to € 400.000, until € 700.000 it´s 9% and after this the ITP will be 10%. To calculate the ITP tax on more expensive houses for a married couple it´s important to take into account if the couple is married in community or separation of goods.

Is the double-taxation agreement in force between Spain and the United Kingdom important?

Yes it is. The main purpose of this double-taxation agreement is for a British national living in Spain or a Spanish national living in the United Kingdom to be able to work and invest in those countries without having to pay twice for the same thing. This agreement will remain in force and is unaffected by the United Kingdom leaving the European Union. This agreement, which came into force on 12 June 2014, contains special clauses that exempt certain public pensions paid by the British government from taxation in Spain, as they can only be taxed in the United Kingdom. Likewise, this agreement protects residents national of either country from being taxed twice on income from capital gains and dividends. Income tax for non-residents, company tax, personal income tax and estate tax are covered by this agreement, for which reason these aspects should not be taxed twice in both countries.

Potential changes in the future for British house owners

Over the next few weeks, there will surely be changes affecting British nationals as it is very likely for the negotiations to change certain important aspects. However, on the date this article is posted (22 December 2020), little is known. We advise that, if you have any doubts, you contact and obtain legal or tax advice from a lawyer or company specialising in non-resident house owners.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors, Málaga

TAX PAYMENT FOR RENTING OUT YOUR SPANISH HOME

Written by Gustavo Calero Monereo on 10 October, 2019. Posted in Andalusian, annual tax, Capital Gains, conveyancing, costa del sol, form 210, Income tax for non residents, lawyer, RTA, tax resident.

Information on tax payment for renting out when you investi in a property in Spain: The number of foreigners interested in buying a property in Spain as an investment or just to be able to enjoy their holiday periods is constantly increasing. Over the last few years, the rental market, in particular tourist rentals, has grown enormously in Andalusia, especially cities on the Costa del Sol and the Costa Tropical, such as Málaga, Nerja, Almuñécar, Marbella, Benalmádena, etc.

More than a few home buyers in Spain are attracted by investment prospects through the earnings obtained by renting out their property. As expected, earnings obtained from renting such properties -either through a permanent contract or through holiday rentals- must be declared in Spain by both fiscal residents (yearly IRPF tax) and non-fiscal residents (quarterly IRNR tax).

What taxes are currently paid by non-Spanish residents?

Since 2016 citizens resident in the European Union, Iceland or Norway have to pay 19% of the profit obtained from rentals. Non-EU citizens must pay 24% of the earnings obtained from renting out their properties. This difference in taxation has resulted in a complaint to the European Commission for discrimination of non-EU citizens, which is pending resolution on the date of publication of this article. This of course is an important matter for British home owners after the Brexit, because when Great Britain leaves the EU under the current ruling they would be considered Non-EU citizens and would therefor pay more taxes.

Can non-residents deduct expenses?

Citizens non-resident in Spain but resident in any country of the European Union, Iceland or Norway can deduct the same expenses as citizens resident in Spain for short-term rentals. The only exception would be for properties rented as permanent homes of the renter as residents in Spain can deduct 60% of what is paid by the tenant while non-residents cannot apply this deduction. Official costs can only be deducted proportionally depending of the total amount of days that the property was rented out. For example, if you rent out 90 days a year, you can only deduct 25% of the yearly costs. Citizens not resident in the European Union, Iceland or Norway cannot apply any type of tax deduction, for which reason they would pay IRNR-taxes on the gross profit received from renting the property.

Tax payment for renting out

What expenses can be deducted?

Citizens resident in the European Union, Iceland or Norway can such as property taxes, waste removal or fees for the homeowners’ association. They can also deduct other expenses, provided that they can show that they are financially linked to the rental activity, such as interest on loans, repair and maintenance expenses, electricity, insurances, water or gas expenses, etc.

When do you have to declare this IRNR with tax payment for renting out?

Payment for income obtained by citizens non-resident in Spain from the rental of their homes takes place quarterly through submitting form 210. If you own more than one property, one form must be submitted for each. This form must be submitted within the first 20 days of April, July, October and January, i.e. it is necessary to submit four forms per year, declaring the rental income for the 12 months of the year. Homeowners who rent out their properties as holiday rentals can submit, in the same form 210, all income received from rent for the three months declared, even if it comes from different tenants.

What can happen if I fail to declare rental income?

If the Spanish treasury detects you are renting your home without declaring anything, it will initiate proceedings to send you a settlement proposal, which will entail late interest due to declaring your income after the due date. Likewise, the treasury is sure to initiate a penalty procedure where you could end up paying a fine of 50% to 100% of what you failed to declare. Currently, thanks to the internet and digital home rental platforms, such as Airbnb, HomeAway, SpainHoliday and Tripadvisor, the Treasury has carried out several inspection campaigns over the last few years, requiring thousands of homeowners to regularise their rental situation.

What about the RTA rental license and the Guardia Civil?

To be able to publish your property on online rental platforms you need to have a RTA rental license of the Registro de Turismo de Andalucia, both for urban and rustic properties. If you don´t have this license yet, we could apply for it on your behalf and inform you about all official requirements that secure a safe and qualitative home to the renter for which you could get an inspection. Urban properties also need their Firsts Occupation License and if you don´t have this yet, we recommend that you contract an architect to apply for it at your Town Hall. Standard licenses for rustic properties (“alojamiento turistico”) have a limit of 90 days a year and you can´t offer extra services like breakfast.

The last thing that you need to know if you rent out your property to tourists, is that you are obliged to report all arrival within 24 hours to the Guardia Civil (Police) through their online platform.

What do I need to arrange?

Well, even if you don’t like paying taxes, just as most of us don’t, we advise that, if you are renting your home in Spain, you regularise the situation and submit form 210 so you can pay the treasury for the profit obtained from renting the home.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

LOWER TAXES ON GIFTS IN ANDALUSIA

Written by Gustavo Calero Monereo on 23 May, 2019. Posted in andalusia, Capital Gains, conveyancing, english speaking solicitor, gift tax, judgment, malaga, nerja, Property law, purchase process, tax liability.

On 9 April, the Andalusia Council approved, through a Decree Law, an amendment of the tax on inheritance and gifts, which, in particular, entails great tax savings in terms of the tax on gifts. This legislative amendment introduced a bonus of 99% of the tax liability due in inheritance and gift tax, that is to say only 1% of what was previously paid would be due.

Needless to say, the Tax on inheritance and gifts is devolved to the different Autonomous Communities that make up Spain so this bonus is the one in force in Andalusia. But, depending on the location of the property or residence of the recipient (for movable assets) –the person receiving the asset–, legislation will be different on the matter of inheritance and gifts.

Example: A father gifts his son 200,000 euros

With the previous legislation, the tax liability on this gift would have been 31,621.21 euros, which meant that the son would have had to pay 31,621.21 euros in taxes after receiving this money from this father. With the new regulation, this tax liability of 31,621.21 euros can benefit from a bonus of 99%, which means that, now, the son would pay a tax of 316.21 euros. Without a doubt, it represents huge tax savings. When money or other moveable property is donated, the applicable regulation for this purpose will be that of the residence of the recipient.

Who can benefit from this bonus on the gift tax?

Those people included in groups I and II established in the regulation governing this tax can benefit. This means that the recipient must be the spouse, child, grandchild or parent of the grantor; the person who gives away the asset.

What other requirements need to be met for gifts in Andalusia?

Besides being included in groups I and II mentioned above, it will be necessary for the donation to be made effective in a Public Deed before a Notary and, if money is gifted, its source must be justified. In case of donating a property, this Deed will be used to inscribe the property in the new name of the new owner in the Land Registry.

What happens with the Capital Gain Tax and Plusvalia?

From the perspective of the tax on gifts, there is no problem with a parent donating a property in Andalusia for the child to apply the 99% bonus and pay a very small amount for the tax on gifts. The problem in the case of properties affects the grantor because, even if the property is gifted, the Tax Agency equates that transfer to the sale of the property –for the Treasury, there is no difference between donating and selling–. For this reason, the grantor must pay Capital Gains Tax calculated on the difference between the original value paid in the purchase of the property and the value of the property when gifted.

It is important to note that if the grantor is a tax resident in Spain, over the age of 65 and gifting their habitual residence, no capital gains tax would be paid for gifting or selling the property.

Lastly, as the city where the property is located also interprets a gift as a sale, it will ask for its piece of the pie in the form of capital gains tax – Plusvalia in Spanish-. This local tax is calculated according to the number of years that the grantor has owned the property, with a maximum of 20 years, and is paid on the increase in value experienced by the plot/land of the property.

What if I value the property at a low price to pay less tax?

You may be tempted to set a very low value for the property gifted and thus pay less Capital Gains tax when it is gifted. This is perfectly understandable but it is very important for this value not to be below the minimum taxable value, which is the taxable value that the Treasury deems properties in Spain to have. That is to say, the value of the property being gifted should not fall below the minimum taxable value to prevent an inspection by the Tax Agency. The minimum tax value in urban properties is based on the cadastre value of the property multiplied by a factor that varies from town to town.

Does this bonus apply to everyone, regardless of whether they are resident in Spain?

As explained in several previous articles, the most recent from March, different judgments have ruled that both residents of the European Union and residents of third countries must be treated the same as residents in Spain for the purposes of the Tax on Inheritance and Gifts. Based on this, anyone who meets the requirements explained in this article can benefit from the 99% bonus in Inheritance and Gift Tax introduced in Andalusia or any other regulation of the relevant Autonomous Community.

Example of a property being gifted

Let’s imagine a Swedish homeowner who bought a property in Almuñécar (Granada) for 200,000 euros and decides to gift it to his son who lives in China, with the current minimum taxable value being 300,000 euros. Since the home is in Andalusia, the son-recipient can benefit from the 99% bonus in the tax due and would only have to pay 554.68 euros for the tax on gifts, of the total tax amount of 55,466.81 euros.

Since the father-grantor obtained capital gains of 100,000 euros from the gift, he will have to pay capital gains tax on this 100,000-euro “profit”, which currently stands at 19% of net profit (after certain possible deductions). However, as the owner is 64 years old, resident in Spain and is gifting his habitual residence, we recommend that he waits until he turns 65 to avoid paying capital gains tax. The son will surely understand the reasons.

What happens to taxes where the recipient resides?

Before accepting a gift, it is important for the recipient to get information, from his or her country of residence, regarding which tax will have to be paid on this, if any. Lastly, it should be said that this amendment of the Tax on Gifts in Andalusia means that the construct of gifts may be attractive in situations where a couple wants one of the spouses to own 100% of the property –only for married couples under separation of assets– or if they want to leave the property to their children or grandchildren during their lifetimes. Previously, from the standpoint of tax savings in Andalusia, the only options were to terminate co-ownership or sell the property but now, with this new amendment, in many cases it will be better to gift it as more taxes will be saved on the transfer of the property.

Read more about the subject of selling your house in Andalusia in the video below:

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

Expenses from the renovation and improvement of a property can reduce the tax

RENOVATING YOUR HOME? DO IT RIGHT AND PAY LESS TAX WHEN YOU SELL

Written by Gustavo Calero Monereo on 9 July, 2018. Posted in Andalusian, Capital Gains, conveyancing, costa del sol, english speaking solicitor, lawyer, New building declaration, non developable land.

Renovating house in Andalusia: tips & save on Capital Gain Tax

One of the first things many people do when buying a property is renovate it.

The expenses from the renovation and improvement of a property can reduce the tax on capital gains in the event that it is evidenced in the future sale of the existing or new build property. It is important to clarify that repair or preservation costs for the property are not deductible. Deductions only apply to renovations or improvements that increase the value of the property compared to before they were made.

The cost of improvements would be added to the price paid in the sale, resulting in lower capital gains tax due to the difference between the price to transfer the property and the purchase price, which means less tax would be paid to the Tax Agency. This will be so provided that such renovation and improvement works can be evidenced so that the Tax Agency can accept them. Below, you will find what I consider to be the most important aspects to be able to prove the works carried out for tax purposes.

TECHNICAL PROJECT

Having an architect draft a project and oversee the execution of the works is not a minor issue. If the works to be carried out are of a certain scale, it is always best to have a professional perform follow-up and control since he or she would be liable if something goes wrong. Likewise, having carried out the works with a technical project and a final works certificate can be used to evidence the improvements made in be property before the Tax Agency.

BUILDING PERMIT

If you are going to renovate a property, it is always necessary to get a building permit for both major and minor works. It is true that this is often not requested to save money, for instance when renovating the inside of a home or a room, as there are less chance you will be found out.

Having a building permit will help you on three important aspects:

To evidence the lawfulness of the works –provided that it complies with the permit granted–. Likewise, it is important for you to know that, if there is an accident at the building site, not having a permit may entail consequences of criminal liability for the owner.
When it comes to works where the distribution of the property will change, the constructed area will be enlarged or a new home will be built, the building permit –among other documents, such as the final works certificate and the permit for initial occupation– will be necessary to register this new construction in the Property Register.
When selling a home with profit, the building permit will serve to prove to the Tax Agency that improvements were made so as to request that these are taken into account as part of the purchase price of the home.

Having a building permit is more important in terms of urban-planning and criminal law than in terms of taxes.

CONSTRUCTION CONTRACT

It is very important to sign a contract for the works to be carried out with the builder. The construction contract will mainly evidence which is the construction company that performs the works, the type of works to be carried out, their estimated cost and the location where they will take place.

INVOICES AND PROOF OF PAYMENT

Without a doubt, in terms of taxation, this is the most important requirement for the Treasury to recognise this improvement or renovation.

We often find homeowners who have spent a lot of money on improving their properties but who have no invoices issued by the builder or proof of payment for these works. It is essential to prove to the Tax Agency that these amounts have been paid by bank transfer or personal cheques made out to the construction company. If you have no way to prove these payments, it will be impossible for you to include these improvements in the purchase price of the property. You must always request an invoice and keep proof of payment.

The costs of the improvements will be added to the purchase price because of which you will pay less Capital Gain tax. The Capital Gain tax of this moment is 19% over the profit between the purchase and sales price minus the deductions.

WORKS WITHOUT A PERMIT THAT CANNOT BE LEGALIZED

It is possible that, for the works you intend to carry out in your home, it is not possible to obtain a building permit, for instance in works to enlarge a home in non-urban land –rural land–, increasing the surface area beyond the development potential –such as when enclosing a balcony– or building to a height higher than that allowed. The first thing you should take into account is that, as the owner, you will assume the legal liability that may arise if legal proceedings are brought in connection with these works without a permit.

If you will be carrying out such works, it is important for you to sign a construction contract with the builder, for you to obtain an invoice for each payment and for payments to be made by bank transfer or cheque. Even if you do not have a permit, it would be possible for these improvements to be taken into account when selling the property.

The Tax Agency cannot reject improvement works for not having a building permit –inspecting urban planning law is outside their jurisdiction–, for which reason it is important for you to be able to evidence the works that were effectively carried out, what their cost was and submit payment documents.

In these cases, it would not be a bad idea to have a technician draw up some type of report –not a project– explaining how the property was before and the works that have been performed, providing photographs and documentation from the owner. This is an additional document that can be used to prove improvement works.

NEW CONSTRUCTION DEED

The New Construction Deed is a document signed before a Notary Public to register a building in the Property Register in Spain. Even when the construction does not have a building permit, it is possible for it to access the Property Register in Spain –which does not mean it is legal– provided that a series of requirements are met.

If you have built a pool, garage, storeroom, etc. in Andalusia without a licence, it is possible for you to get an architect to issue a certificate of age six years after completion, to evidence the new construction and its age. This certificate can be used to sign a Deed of Declaration of New Construction before a Notary Public and register the construction in the Property Register. In some cases, it would not be possible to register it in the Register, such as when the land is especially protected.

VALUE OF THE CONSTRUCTION DECLARED IN THE DEED

The value of New Construction assigned in the Deed cannot in itself be used to prove to the Treasury how much was spent on the property at the moment of selling.

For instance, if you declare, in the Deed, that you have spent 50,000 euros on the pool and garage you built, unless you have proof of payment and invoices from the construction company, the Treasury will reject this expense. This is so because what you do before the notary is nothing more than a statement, which means that the Notary does not check if you really spent that amount or if it was more or less –and isn’t required to do so–.

In my opinion, if you are going to do a Declaration of New Construction for works without a licence, you should include a copy of the invoices and/or proof of payment to the constructor in the Deed, as this would evidence the value you declared and make it easier for the Treasury to accept it when selling the property.

Lastly, if you are thinking about doing any work on your property, I wish you all the luck in the world and, most of all, lots of patience; I almost ran out of it myself when I renovated mine…

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

RECLAMATION PLUSVALIA TAX FROM SALE PROPERTY AT A LOSS

Written by Gustavo Calero Monereo on 21 February, 2017. Posted in Andalusian, Capital Gains, costa del sol, english speaking solicitor, judgment, nerja, plusvalia.

A few weeks ago, a seller was bitterly complaining to me about what they had paid for capital gains tax on the sale of their home in Capistrano, Nerja to a Swedish couple, even though no profit had actually been made.

I then remembered an article we published in June 2014 on this matter, where we spread the news about new case law defending the position of taxpayers who had sold a property at a loss and, furthermore, were forced by the city council to pay capital gains tax, even though no profit had been made from the sale of that property.

Many sales take place at a loss and there are many more to come as, in general, current prices are still below those in effect a few years ago.

In the two and a half years since the publication of that article, the position of taxpayers to be able to claim back what they had paid in municipal capital gains tax for the sale of their homes without having made any profit has improved and the government will probably be forced to amend the Law in order to prevent councils from continuing to demand payment in these situations.

First of all, if they want to cancel the capital gains tax bill received from the council, they must know that they need to pay it first and then file a claim, and they will then have no option but to resort to the courts to claim a refund.

However, according to a judgment of the Higher Court of Justice of the Community of Valencia in late 2016, it is not necessary to obtain an expert appraisal to prove the value of the property, as it is understood that the amounts shown in the purchase and sale deeds clearly determine the actual value of the property and, therefore, show whether a profit was made.

So far, taxpayers wishing to file a claim through the courts needed an appraisal to prove that the actual value of the property transfer was lower than the purchase price. However, through this judgment, the amount shown in the purchase and sale deeds can be enough to accredit the values of the property when, through examining the deeds, one can easily see that there has been no increase in the value of the land.

The strongest argument in favour of taxpayers is that the Constitutional Court, in its recent judgment of 16^th February, established that making citizens pay taxes for non-existing enrichment in the sale of their homes contradicts the principle of financial capacity set down in art. 31.1 of the Spanish Constitution. The Constitutional Court clarified that capital gains taxes are legal but it is unconstitutional to pay this tax when no actual gains have been made in the sale of the property.

The Constitutional Court also clarified that legislators will be the ones who will have to amend the legal framework of this tax in order to prevent taxation in these situations where no capital gains are made from the sale of a property.

Until the Law is amended, we assume that councils will continue to demand payment of capital gains taxes even when properties are sold at a loss but, after the pronouncement of the Constitutional Court and with the arguments set down in the other judgments mentioned, taxpayers will be able to claim back what they have unduly paid to the council in these circumstances. However, it is true that, for smaller amounts of capital gains tax, it may not be interesting to file a claim, taking into account the costs involved in hiring a solicitor and a barrister.

Many cities in this area: Nerja, Frigiliana, Torrox, Vélez Málaga, etc., issue bills for capital gains tax once the sale is recorded in a Public Deed, for which reason, in order to obtain a cancellation of this bill from the council, it would be necessary to challenge it before the deadline established by law.

If the claim is not filed before the deadline and, therefore, the administrative action becomes unappealable, it will become more difficult to file a successful claim.

Author: Gustavo Calero Monereo, lawyer at C&D Solicitors Torrox (Málaga, Andalusia)

FUTURE REFORM IN ANDALUSIA FOR THE OWNERS OF HOMES CONSTRUCTED ON NON-DEVELOPABLE LAND

Written by Gustavo Calero Monereo on 10 November, 2014. Posted in Andalusian, assimilated out of ordination, building permit, Capital Gains, Featured, Headline, legal advice, malaga, non developable land.

Andalucian houses constructed non-develople land — Andalucian houses constructed on non-develople land

Three weeks ago the Junta de Andalucia (Andalusian Regional Government) announced a reform of the Urban Development Law for Andalusia (LOUA) which aims to provide further legal security for owners of homes that are built on non-developable land (rustic land).

With the current LOUA regulations, for those buildings constructed on rustic land in Andalusia and which are within a zoning plot, the prescription period of six years that the administration has to “attack” these constructions on rustic land does not apply. In other words, no time limit is established, therefore the government leaves open the possibility to begin administrative procedures against said plot and the constructions that are on it, when it deems convenient, even if it has been over six years since the home was built.

The above has the main effect that a building on rustic land, built over six years ago on a property that has not been segregated, cannot be penalised or “attacked” by the government, whereas if the construction is part of a segregation/plot division it could be penalised in spite of being built over six years ago, and demolition of the homes built on this plot could be ruled, as established in article 49 of the Regulations on Urban Development Discipline. Regarding this article, I point out that in spite of it and in my opinion, I do not think that it is feasible to carry out any demolition under this precept due to several legal reasons.

The problem with current regulations since the LOUA came into effect in 2003 is that no serious monitoring or inspection policy has been implemented by the Junta de Andalucia and the Town Halls on rustic land. This has led to the proliferation of thousands of new homes and plot divisions throughout Andalusia, especially during the times of the real estate boom, and more so on the Costa del Sol, where this speculation reached unsustainable proportions.

In spite of the fact that it was feasible to control these constructions, it was not done and this led to the buildings entering the legal level, with many owners purchasing in good faith with all the appearances of legality. This has shown that current regulations in Andalusia on rustic land, and specifically on plot zoning, are pointless, because no one has made sure that they were enforced, making them inefficient at best.

Now the intention is to modify the LOUA and provide the possibility for isolated constructions located on plots of rustic land to regularise their situation through the figure of assimilating it as unregulated, that was introduced by the Decree of 2012. This will be so provided that the period of 6 years has elapsed without the government beginning any penalisation procedures against these buildings, therefore to these purposes the legal situation is considered as equal to those homes that are not located on a zoning plot.

It will take a period of 5 or 6 months for this reform to be approved, and it will be approved by parliamentary proceedings, therefore changes will be included during its approval.

I understand that this initiative by the Junta de Andalucia is a first step towards solving this problem. We all would have preferred for this not to have happened and that rustic land would never have been part of town planning speculation, but this problem started many years ago and the issue is clear; what to do with thousands of homes that cannot be demolished now?

Most of these homes are inhabited and they are still being bought and sold between private persons, therefore it is necessary to regularise them so that third parties acting in good faith have legal security as owners of these properties. Likewise, it is reasonable that those that were built without a building permit, which is most of them, should assume a cost for the regularization procedures and they should contribute the same as any citizen who wishes to build a house, and this bearing in mind that the acknowledgement by AFO is not the cure-all either. From an ecological and environmental standpoint, the legalisation procedure must guarantee that these homes do not cause any further damage to the area where they are located, and that their waste water is completely purified by autonomous installations, because as long as they are fully illegal, and cannot be “attacked” by the government, each owner will do what they see fit and damage to the environment will be higher.

In short, given the current situation and bearing in mind the problem that has been created due to the inactivity and lack of control by the public administrations, from a legal, financial and environmental standpoint, we must establish a regularization procedure for these homes. If not, if we continue with the current situation, it would be a great mistake and it would only continue to aggravate the problem as the years go by.

Author: Gustavo Calero Monereo, C&D Solicitors (lawyer)

Torrox-Costa (Malaga/Costa del Sol/Andalucia)

THINKING ABOUT SELLING YOUR PROPERTY IN SPAIN? DO IT IN 2014 TO AVOID PAYING MORE TAXES

Written by Gustavo Calero Monereo on 19 September, 2014. Posted in Capital Gains, costa del sol, english speaking solicitor, Headline, legal advice, nerja, non tax resident, tax resident.

Capital Gain Tax when selling Spanish property

Next 1st of January 2015, a new tax reform will come into effect. This reform was approved in August by the Spanish Government and, among other measures, it will affect taxation of capital gains obtained as a result of a property sale in Spain:

1) Tax reduction from 21 % to 20 % for capital gains earned by a sale if the seller is non-tax resident in Spain.

2) Tax reduction from 21 %-27 % to 20 %-24 % for capital gains earned by a sale if the seller is a tax resident in Spain.

In these terms, it may seem that, from the 1st of January 2015, taxes for capital gains earned by a property sale will be reduced. However, you should be careful with this reform, since from the 1st of January 2015 sellers of a property may not be enable to apply reducing and updating coefficients of the purchase value when the property was bought.

You may wonder what it means; and it means that heretofore if you bought a property and then you sold it, when calculating the capital gain from the sale, you could update the price paid when you bought the property a few years ago, however, from 2015, this purchase value will not be allowed to be updated. For example:

You bought a property by public deed for 150,000 Euros in 2003 and now it is on sale for 200,000 Euros.

1 ) IF YOU ARE NON-TAX RESIDENT IN SPAIN

– if you sell your property in 2014: the updated purchase value would be 177,540.00 Euros and 4,716.60 Euros should be paid for taxes as a result of a capital gain of 22,460.00 Euros taxed at 21 % rate.

– If you sell your property in 2015: the purchase value would be 150,000 Euros (no update is allowed) and 10,000 Euros should be paid for taxes as a result of the capital gain of 50,000 Euros taxed at 20 % rate.

2) IF YOU ARE TAX RESIDENT IN SPAIN

– If you sell your property in 2014: the updated purchase value would be 177,540.00 Euros and 5,375.00 Euros should be paid for taxes as a result of the capital gain of 22,460.00 Euros obtained.

– If you sell your property in 2015: the purchase value would be 150.000 Euros (no update is allowed) and 10,880.95 Euros should be paid for taxes as a result of the capital gain of 50,000 Euros.

As shown by these examples, tax savings when selling your property in 2014 or from the 1st of January 2015 may be worthy of consideration.

Other examples of updated values with the same prices above: if you bought the property in 1995, the updated value in 2014 would be 210,750.00 Euros; then, you should not pay taxes for capital gain if it is sold in 2014 and you should pay 10,000 Euros for taxes if it is sold in 2015.

If you bought the property in 2013, the updated value in 2014 would be 154,454.00 Euros, then if you sell it in 2015, you would pay less taxes than selling it in 2014; however, this a small saving between 400-700 Euros according to whether the seller is a non-tax resident or tax resident in Spain.

In these examples, neither deductible expenditures (taxes, notary, registry and estate agent fees, etc.) have been taken into account, nor other possible deductions to which fiscal residents may be entitled.

CONCLUSION: if you are thinking about selling your property in Spain, you will probably be interested in doing it before the end of 2014, you will avoid paying more taxes for the profit obtained on the sale.

If you have recently bought a property or the sale price is very similar to the purchase price, you may be interested in selling it from 2015, as there is not a great difference regarding taxation. If you are selling at a loss, that is, you obtain no profit, it makes no difference whether selling it this year or the following.

Nevertheless, the most coherent decision is to make your own tax estimation for your particular case in order to know whether it is more convenient to sell this year 2014 or not, so you will have a clear idea of your possible tax savings.

Author: Gustavo Calero Monereo, C&D Solicitors (lawyer)

Torrox-Costa (Malaga/Costa del Sol/Andalucia)

SPANISH PUBLIC TAX ADMINISTRATION REVIEWS PROPERTY TRANSFER VALUES

Written by Gustavo Calero Monereo on 7 February, 2014. Posted in Andalucia, Capital Gains, english speaking solicitor, Featured, Headline, Property law, Tax Law, taxes.

Spanish Tax Administration reviews property value

In the last few years, property market prices have dropped in Spain and the cases in which the National or Regional Tax Administration has reviewed declared values for property transfers have increased, whether for conveyance, inheritance or gifts; that is, you may sell your property for a certain and determined price, but the Regional or National Tax Administration may review that value after the sale and for tax purposes; then, it may consider that the real value of this sold property is higher than the one declared on the deed of sale, and therefore, the buyer shall pay the Transfer tax (ITP) on property transfer on the basis of the new value, which has been reviewed by the Regional Tax Administration, although the buyer had bought it for a lower price. In addition, the seller may have to declare capital gains higher than those actually obtained as a result of the review carried out by the National Tax Administration.

The abovementioned situation is legal and possible pursuant to Article 57 of Spanish general taxation law, in which it is provided that the Public Administration may check the property values by using different means.

Regarding urban properties, the Regional Tax Administraions and the Andalusian Regional Government are often supported on the grounds of an Order that is yearly approved to calculate the taxable minimum value of urban properties in this regard. As a result of this, it is possible to calculate this taxable minimum value from applying a rate provided by this Order to the details contained in the real estate tax IBI receipt (council tax). Then, you can know in advance whether the Tax Administration may claim more taxes or not when transferring your property.

Regarding rural real estate or properties with special characteristics, the matter becomes increasingly complicated, since Public Administrations may not always proceed by applying the aforementioned values and sometimes they are supported on the grounds of an expert report drawn up by technical personnel of the Tax Administration, which justifies the proven value of this rural or special property; for example, currently it is very common that the reviewed value for this type of properties is determined according to the estimated average values of construction, which are yearly publish by the Professional Association of Architects of Malaga. These values are indexed in a table containing the construction value per built square metre pursuant to the construction type and its features.

In the last year, as a result of this significant increase of value reviews by the Andalusian Tax Administration and, to a lesser degree, the National Government, our law firm always carries out an estimation of the taxable minimum value for tax purposes when advising our clients about property conveyance issues. Thus, they are warned of the possibility that their property value may be reviewed and the possible extra cost which may arise from this review. This is aimed at preparing our clients for this unpleasant surprise.

In general terms, the Andalusian Regional Tax Administration currently collects every single Euro from value reviews of property conveyances, so that if the taxable minimum value is higher than the conveyance actual value, it is quite normal that the Regional Government notifies you after a few months claiming the payment of the ITP tax on property transfer, stamp duty tax or gift and inheritance tax for the excess value reviewed.

The National Tax Administration, which is the competent body for capital gains collection of property sales, is not as determined as the Regional Tax Administration is when reviewing values. However, in those cases that the seller is not a tax resident and no capital gains has been obtained for the sale, when the 3 % withheld by the buyer is requested to be returned, the National Tax Administration does not hesitate to review the taxable minimum value of that property, so that the 3 % withheld is not returned in full to the seller. Furthermore, as a result of the reviewed taxable value, the seller may also have to pay the Tax Administration for capital gains tax, although no real gains had been obtained from the sale.

Obviously, there are grounds to challenge the property revaluations before the Public Tax Administration; however, in order to know if it is worthy to challenge it, it is important to examine and analyze each particular case in detail and determine if the reviewed value is properly justified before going ahead with the recourse.

Finally, it is also worth mentioning the possibility to file with the Tax Administration, prior to the property transfer, a binding report to obtain from the Tax Office the taxable value of this property. In some cases, it may be advisable to request this report, which commits the Tax Administration to respect it, although the value on this report will also oblige us for tax purposes.

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

BUYING YOUR HOME IN SPAIN BEFORE THE 31ST DECEMBER 2012

Written by Gustavo Calero Monereo on 15 November, 2012. Posted in Capital Gains, developer, english speaking solicitor, Headline, Income, Property law, taxes. No Comments on BUYING YOUR HOME IN SPAIN BEFORE THE 31ST DECEMBER 2012

In this year we have published several blog articles regarding tax changes on property subjects which the Spanish Central Government has passed over this year. In that regard, the deadline to implement most of them finishes on the 31st of December.

As a requirement to increase tax revenues, this new year will bring the removal of some tax reliefs which are currently enjoyed by home buyers in Spain.

From the 1st of January, home buyers in Spain should consider that the following tax incentives will disappear:

1) 50% tax exemption on capital gains obtained for the future sale of the property which had been purchased before the 31st of December 2012.

2) The Spanish VAT rate will increase from 4% to 10% for new housing purchases.

3) Tax deduction for main residence purchases, applicable in the event of tax residence in Spain.

Tax saving when buying a home before the 31st of December may become a very significant factor to keep in mind for those looking for a property in Spain and hesitating about different alternatives to take a decision. In these cases, we recommend them to make up their minds before the end of the year in order to take advantage of the above mentioned tax relieves.

Furthermore, sellers have also a reason to sell before the 31st of December—from the 1st of January 2013, Spanish Plusvalia (municipal capital gains tax on land) rate may increase from 66% to 150%, depending on the municipality where the property is located.

It is also worth mentioning that Town Councils reviewing cadastral values in the last 5 years were obliged till now to apply a 40% to 60% reduction on the resulting payable fee for Plusvalia tax. However, from the 1st of January 2013 this obligation will disappear—then, each Town Council may decide whether to apply or not this reduction. Regarding the current economic situation of most Town Councils, all of us may have to get use to the idea that just a few of them may decide to apply this reduction.

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)

TAX EXEMPTION WHEN BUYING A PROPERTY BEFORE 31/12/2012

Written by Gustavo Calero Monereo on 6 June, 2012. Posted in Capital Gains, discount, english speaking solicitor, Featured, Headline, Income, legal advice, malaga, NON RESIDENT, property law, resident, solicitor, taxes. No Comments on TAX EXEMPTION WHEN BUYING A PROPERTY BEFORE 31/12/2012

Regarding the current financial situation, which is reflected in the drop of property sales in Spain every three months, the Spanish Government has passed a new tax exemption. This exemption tries to promote the sale of properties and may become very interesting for both individuals and bodies corporate considering buying a real estate property in Spain in the short term, whether they purchase commercial premises, homes, offices, garages, plots, storage rooms, etc.

On the 12th of May 2012, the Central Government passed the Spanish Royal Decree-Law 18/2012 of 11th of May on the restructuring and sale of the property assets of the financial sector. This regulation included in its First, Second and Third Final Provisions the tax exemption for bodies corporate and individuals, whether resident or non-resident in Spain. This reform law allows all those buying a property from the 12th of May 2012 till the 31st of December 2012 to pay taxes only on the 50% of the capital gains tax when selling the property subsequently, whether in 1, 5, 10…etc years, while the remaining 50% is free of charges.

This exemption may save an important amount of money, because if a property is currently sold in Spain, capital gains are taxed at 21% for non-residents (19% from 2014), at 27% for resident taxpayers in Spain (21% from 2014) and at 30% for bodies corporate.

Here we present an example: imagine you are thinking about buying a property in Spain considering the current market opportunities; the price for this property may be EUR 200,000; the following eventual scenarios may occur according to the date of purchase when selling this property, for example, in 2017 for a sale price of EUR 270,000:

1) Non-resident taxpayers: EUR 70,000 of capital gains at 19% makes a total payment of EUR 13,000; if the purchase is performed before the 31/12/2012, the total payment would be EUR 6,650.

2) Resident taxpayers: EUR 70,000 of capital gains at 21% makes a total payment of EUR 14,700. If the purchase is performed before the 31/12/2012, the total payment would be EUR 7,350.

3) Corporate: EUR 70,000 of capital gains at 30% makes a total payment of EUR 21,000. If the purchase is performed before the 31/12/2012, the total payment would be EUR 10,500.

Obviously, this tax saving is not definitive in order to decide whether to buy a property or not in Spain, as it is not possible to know whether prices may go down much more nor the gains resulting from the eventual property sale. However, this fact may be a helpful factor to take a decision for those considering buying a property, especially for those non-speculative potential buyers whose main purpose is to enjoy this property for many years; thus, the longer they own the property, the greater the capital gains may be when selling it. Look at the figures and draw your own conclusions.

Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)