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Spain - Property & Fiscal Residence
HOW TO LIVE THE DREAM?
Buying Your Property Directly:Where one is Fiscally Resident in SpainIn a surprising number of cases there is no need for any tax planning structures particularly where the property is worth less than €200,000.00; Spain is the jurisdiction of fiscal residence and one lives in the purchased property as ones main home and intends to do so for the foreseeable future. The veracity of such a decision becomes even stronger where there is a mortgage - A mortgage obviously reducing the direct and real equity stake in a property - few other taxable assets and inheritance issues are unlikely to become an issue in the near future. In addition, as can be seen from the Wealth Tax Table (see page 10), this tax really only becomes a concern to couples with combined assets over €516,870.42. Main Home Rollover Relief for Spanish Fiscal Residents: For Spanish fiscal residents capital gains tax exposure can be rolled-over to a new property provided they lived in their previous property for at least 3 years and that they buy a replacement property within 2 years of the sale. NB - Full rollover only occurs if the new property is the same price or more expensive than the sold property. If the replacement property is less expensive then the rollover benefit will be proportional to the value of the property i.e. if the replacement property was 50% of the value of the original home then 50% of the non-reinvested sum would be subject to CGT at 15%. Over 65-year old residents selling their main residence where they have lived for 3 or more years are not subject to CGT and do not need to reinvest within 2 years. Inheritance Main Residence Tax Base Reductions - Where a spouse, child or relative over 65 who previously lived with the deceased for at least 2 years immediately prior to his/her death and continues to live in the said property for at least 10 years from the date of death the taxable base on the Main Residence will be reduced by 95% up to a maximum reduction of up to €122,606.47 for each inheritor. It should be noted that there is a very similar deduction for the transfer of family businesses. It should be noted that as in the UK it is possible to Gift a certain amount of money/chattels each year without creating a tax event but the sums are small. It is also possible to nominate future beneficiaries as co-owners of a property or as full owners simply giving a life interest the original or originally intended owners i.e. normally parents would have a life interest in a property owned by their children. Generally such structures are best executed before a move to Spain but one has to be careful about unintended future beneficiaries such as when a child marries. Where one is NOT Fiscally Resident in SpainThe advice and logic proffered for a person/couple physically moving to Spain and becoming fiscally resident is quite different (even within the sub - €200,000.00 range) to that where a second home is purchased but fiscal residence is manaintined in the UK or Ireland. For a start, under Article 13 of the UK/Spanish Double Taxation Treaty (21/11/751 capital gains tax is payable in the country of permanent residence save for property where CGT is payable in the country where the property is physically located. In other words, despite fiscal residence remaining in the UK (The same also applies in the Irish/Spanish Tax Treaty) capital gains tax exposure stays in Spain BUT WITHOUT THE TAX CONCESSIONS AVAILABLE TO A TAX RESIDENT OF SPAIN. Further, as if this wasn't bad enough non-fiscal residents of Spain are subject to a 35% rather than the standard 15% capital gains tax rate applicable to Spanish residents with a second or investment home/property. For these reasons, it is often beneficial to own properties within the €100,000.00 + band through either a domestic SL company or better still, as they are cheaper to maintain and set up, a branch of a UK company registered with the Spanish tax authorities. The reason is simply that both a SL or a branch are legally considered separate legal entities under Spanish law and hence are subject to the lower 15% capital gains tax rate and further can also benefit from any applicable tax deductions/concessions. Read more: » Spain - Setting up a Business |
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