tax resident and capital gains tax

Hi,

I have a Spanish residencia (the card with my picture on) and live in Spain, surviving by teaching a few English classes a week but I don’t declare tax. I have a property that I want to sell and then re-invest the money into a smaller property (hopefully without a mortgage or a very low mortgage that I can afford). I am aware that for capital gains reasons I need to show a tax certificate so that 3% of the selling price won’t be held back. If I go to the tax office to declare (which I believe is between May and June each year?) could they ask me why I haven’t declared before and how I have been living on no earnings for the past few years? The reality is that I’ve only earned enough to pay my mortgage, bills and minimal food (and sometimes struggled with that) in order to keep things going and now I’m at a point where I know I have to sell before I can’t start paying the mortgage. Am I doing the right thing by considering going to the tax office so 3% won’t be retained or am I opening up a “can of worms� by doing this. The 3% could really make a difference to whether I can afford to get something without a mortgage or not so any advice greatly appreciated.

Kind Regards

Debbie

Dear Debbie,

1. If employed those that earn less than €22,000 gross a year from one employer you are not obliged to make an anua lincome tax declaration in Spain. If your income comes from more than one employer you are obliged to file it.

2. If you earn less than €8,000 gross a year you are not forced to file one at all.

3. If you are self-employed then you should be filing an anual tax return plus the quaterly tax returns for VAT as you should be invoicing VAT.

Presumably you fall in number 2 or 3.

As you correctly write in order to waive the 3% being witheld by the buyers' lawyer you will need to provide a certificate from the Tax office stating you are fiscal resident for tax purposes. But this doesn't mean you will not be held liable to pay for CGT next year, it only means you will not be withheld this amount now.

Yours faithfully,

Hi,

Thanks your your reply.

I fall into category number 2.

I have a few more questions if that's okay....

1. One of the stipulations for cg tax excemption is that I have to have lived in the property for at least 3 years. Do they mean just living, or living and declaring tax every year?
2. As my plan is to reinvest all of the sale proceeds into another property, would declaring at the tax office (and receiving some sort of certification) make me fiscally resident in order to be elegible for cg tax excemption? (I have lived here for more than 3 years and will be reinvesting within 2 years of the sale).
3. As far as I can see, as long as I reinvest all proceeds into another property within 2 years, have lived in the original property for at least 3 years (which I have done, but without any declarations at the tax office - Q1?), and have declared at the tax office this year, is this enough to totally avoid cg tax? (as 18% on the profit would amount to about €10,000!!).


Many Thanks

You're welcome.

Actually it would be 19% on the profits, not 18% as you write. It's been raised for this year:

Spanish Capital Gains Tax Raise to 19% Goes Unnoticed -22nd March 2010

Well this is where things get interesting. The Tax office is always quick to label you as a fiscal resident if you are required to pay taxes but if it's the other way round (you taking advantage of some tax allowance) they resemble a cat on its backside clawing back at you.

Bottom line, it won't be easy for you. But then again its worth trying.

By living in the property for the last 3 years as a main residence it means just that. You will be required to provide evidence to support your claim such as utility invoices, mail etc.

I would advise you to first file your annual tax, then obtain the certificate of being fiscal resident and then sell your house and apply for the roll-over relief.

Btw, the property you buy and re-invest your sale proceeds can be locAted in the UK. The only thing required -again- is that it amounts to your main residence.

Yours faithfully,
Raymundo LarraÃ*n Nesbitt