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Good news from the Spanish taxman - 18 December 2006

Yes, you really did read that correctly. The Spanish tax authorities have given overseas property owners an early Christmas present with news that they are reducing the level of Capital Gains Tax (CGT) for non-residents.

Following a complaint to the European Court that it was unfair for CGT to be charged at 35% for non-residents while the tax was charged at just 18% for Spanish residents, the authorities have been forced to amend the rules. The complaint was upheld by the court, and from 1st January 2007 the tax, which applies to personal income as well as profits from the sale of property, will be charged at 18% across the board.

This simplification of the tax laws should make it much easier for overseas buyers to calculate their gains as and when they come to sell on their property. At present, those people who are over age 65 and have lived in their Spanish property for more than three years are exempt from CGT.

The higher level of tax on non-resident buyers has long been regarded in Spain as a way of allowing the authorities to help themselves and cash in on the property price boom as more and more foreigners invested in the country.

The higher CGT level also put Spain almost in line with the CGT laws in the UK, but there is now a marked difference, and this makes investing in Spanish property for profit even more attractive to investors. Currently, CGT in the UK is charged at 40%, but only applies to a second home and not the main residence.

While Spain remains the most popular destination in Europe for British emigrants to buy their new homes overseas, as shown in the recent survey released by the Institute of Public Policy Research, many buyers are unaware of the complexities of the tax laws when they make the move. The advice of a specialist in international taxation will make sure your liabilities are covered while making savings where they can.

And while this news is great for people who are selling their Spanish property, latest figures from a survey carried out by rental specialists holidaylettings.co.uk has found that some 42% of holiday home owners never plan to sell their overseas property. This backs up the idea that in recent months the market has shifted more towards people who are buying properties they want to keep, in areas where they would want to settle themselves. Summer this year has shown strong interest in the traditional markets of Spain and France, marking a possible swing away from pure investment properties.

Other findings in the survey include 51% of respondents saying that their main reason for buying overseas was the advantage of having cheap holidays in the future, and over 50% bought their property within the last two years.

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