December 8, 2008 at 12:59 pm #54554
I own a property in Spain in joint names with my brother. We have had the property for 20 years. We have agreed that the property should be in my sole name (in exchange for him having the family home in the UK). However my brother is not prepared to incur any expenditure in order to do this. My understanding is that we would have to use a lawyer and would be liable for CGT in Spain on changing the escritura to my name – due to the increase in value.
It is more complicated because although I have a NIE and Spanish bank account and have paid all the costs associated with the house since the start, my brother has not. He says it will come to me anyway when he dies but he has not made a Spanish will either and, in all likelihood, will outlive me! I know that I can make a will to leave my half to my spouse but what would then happen to my brother’s half if he does not make a will? Would it automatically come to me as the joint owner (or to my heirs)?
I wonder if anyone knows of a simple way of changing the names on the escritura and whether or not any of this can be done from the UK?
I am quite prepared to pay any taxes/duty due but does anyone know how much this might amount to?
I have never made a tax return in Spain and don’t know how to go about it but obviously this would be the time to do this as well. We only spend a maximum of 3 weeks a year at the property but do hope to spend longer periods once we retire in a few years.
Many thanks for any advice and apologies for the length of this, my first, post.
December 8, 2008 at 1:17 pm #88479
The bad news is you should have been paying non-resident property taxes for the last 20 years…the good news is I think they can only “do you” for the last 4 😆
December 8, 2008 at 8:42 pm #88487flwParticipant
If you want to transfer the property into your name, the best way to do so is that you conduct a Dissolution of Joint Property Ownership. If done properly, this procedure attracts only 1% on the declared price, plus capital gains tax on half the declared price (assuming your brother owns half of the property). As the property was purchased 20 years ago, we can expect capital gains tax to be not too significant. Other costs are Notary and Land registry fees. Your solicitor should be able to provide you with a complete breakdown of costs and fees for the whole procedure. Solicitors fees should be no more than the typical conveyance fee (normally 1%).
Regarding the Property Income and Wealth tax not paid for the last 20 years, the statute of limitations established a maximum period of 4 years over which the taxman can request payment, as hillybilly points out. If your brother chooses not to pay this tax, and he is withheld 3% capital gains tax on the transfer (some notaries make this a requirement on dissolution procedures while others don’t), the taxman will make sure any outstanding Income and Wealth tax amounts are deducted from whatever retained amounts (3%) are to be refunded (if applicable).
No need to apologize for the lenght of your query. We are here to help! 🙂
December 8, 2008 at 11:37 pm #88490
“As the property was purchased 20 years ago, we can expect capital gains tax to be not too significant”
Do you mean significant ??? The appreciation over the twenty year has been very high even if you allow for recent slow down. I do realise that there will be tapering/indexation relief & the Capital gains tax would be calculated on catastrel value.
Could you please expand on the above.
December 9, 2008 at 1:28 pm #88499
Thanks very much Inigo for the information regarding Dissolution of Joint Property Ownership. I have made contact with the Notary who holds the original escritura and hope that this will be one of the options offered. Certainly sounds preferable to paying 7%.
As for the property tax, I guess I will have to bite the bullet – problem has always been being a half owner when the other half doesn’t want to pay anything! No money will change hands for the change of ownership but obviously we (read me) will have to pay whatever is due.
Do you happen to know if the non-resident property tax is very much? We don’t rent the property out so I believe it is based on a percentage of the property value – would this be the real value or the make-believe one in the escritura?
Do you know if the notary would be able to handle this or should I find an accountant?
Finally, can I assume I will have to pay penalties for non-filing in the past? Any idea what these might amount to?
Thank you so much for any assistance.
PS – Shakeel – I believe I heard that you get taper relief on CGT when you have owned a property for a long time so it may well not be significant in spite of the increase in value.
December 10, 2008 at 8:22 pm #88507flwParticipant
Property Income and Wealth Tax are calculated separately and depend on the “valor catastral” for the property. If you can read Spanish, the instructions on how to fill in Form 214 can be found here. Not paying the taxes in time has a surcharge of 5% of the amounts owed for every 3 months you are late (up to a maximum of 20%), plus interests. I don’t think the notary is going to help you with this, they don’t normally do. However, every notary is different, so I cannot tell for sure.
Regarding the dissolution of joint property ownership, if you choose not to use a solicitor with enough experience in these sorts of procedures, make sure the notary knows what he is doing before signing the deeds. A notary is not particularly concerned about maximizing your tax mitigation (it’s not really his job). I’ve heard a few horror stories in which the taxman considered the transaction as a donation instead of dissolution of ownership, and requested further tax (in many cases up to 30%, and even 81% in some extreme cases), just because the acquiring party didn’t show proof of payment. There are ‘tricks of the trade’, which you will not read about on public forums (the line between tax mitigation and tax evasion is rather thin) which deal with these matters.
Shakeel, answering your question about capital gains tax, if the property was bought in 1988, after applying all the deductions (“coeficientes de abatimiento”, “coeficientes de actualización”, plus costs, fees and any improvements on the property), one can expect to be subject to capital gains tax on no more than 10% of the profit. The profit here has to be divided by 2 (only 50% of the property is being transferred). The resulting amount is then taxed at 18%. The trick here is to know what is the minimum value we can declare for the property, before the taxman becomes suspicious and sends you the infamous letter requesting more tax.
Taxes are a tricky subject, and I certainly wouldn’t leave my tax planning to a notary.
December 10, 2008 at 8:43 pm #88510
Thank you. Inigo.
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