Capital gains question

Hi,

I am a uk resident, selling a property in Spain. I have had my 3% deduction passed to the tax authorities and my solicitor has told me that, as we have made a profit, we will have to pay more within 30 days. Although on paper we have made a decent profit, it is at least in part due to the work we carried out. We have installed air con, double glazing, upgraded electrics and plumbing and a new water heater. But our solicitor says none of this can be considered against the liability, and that only changes to the structure or footprint can be submitted. Anyone with experience of this, who can advise if this is so? I’m sure when we bought we were told we could offset these improvements when we sold. TIA

I had something similar, but produced a list of expenses, with receipts and avoided CGT. 

Some solicitors in Spain forget who is their client.

Hi acer. Thanks for the info. Can I ask how you did it? Via your solicitor or some other way? Unfortunately I am not in Spain right now and my solicitor has Power of Attorney. But I have invoices for everything.

As far as I know, the only deductible expenses are expenses and taxes attached to the purchase, i.e transfer tax, land registry and notary / legal fees etc. Although it is self-assessment, meaning you can put down any amount you wish for your "purchase costs", this is easily checkable by hacienda. CGT is calculated on the difference between your purchase costs - not what you spent on the property during your ownership - and the sale price. 

Hi Roberto,

Yes, I hear that from many people. But then I hear from others in exactly the same position as I, who have apparently managed to get a rebate against improvements they’ve made to their property. Is this some sort of regional variation, or some people just knowing how the system works?

is there anyone on here who can tell me how they successfully offset the costs of improvements against their Capital Gains liability?

As I said, it is self-assessment. I suspect in the cases you have heard of where people "successfully" offset costs of home improvements, they probably just got away with it because hacienda didn't bother checking their figures. 

Have a look at the instructions for completing the 210 self-assessment form On P7 under "Income from the transfer of real estate assets" you will find what to me appears to be a pretty clear definition:

"Any profit obtained from the transfer of real estate assets is subject to tax. The profit is the difference between the transmission value and the purchase value."

(transmission value being the declared sale price, purchase value being what you initially paid)

Read on, and you will find various references to calculating taxable base by "deducting any expenses and taxes inherent to the transfer". My interpretation is that any alterations to the property during your ownership would not come under the definition of being "inherent to the transfer". 

Others may interpret it differently. Others may just take the chance that hacienda won't bother checking their figures (you are not required to submit supporting documentation with the 210, but may be required to produce it at a later date if hacienda do decide to check your figures)

As I see it, you have a choice: submit your own declaration, find a new solicitor who is happy to include your home improvement costs in the calculation (unlikely, imho) or go with what your existing solicitor is telling you. For what it's worth, I would personally opt for the latter. 

Thank you, Roberto, for that clear explanation.

There's certainly some flexibility if you put your mind to it, but you need to take the initiative.  Mine was partially based on the opportunity that in Spain a property sale often includes contents.  But of course that's not compulsory and the buildings and contents sales can be two transactions.

We inherited some good stuff when we bought but spent perhaps more than we should on upgrades to contents and minor structural improvements - most of which could be used to offset the CGT position.  The solicitor was helpful in agreeing the figures with all parties, including the Hacienda.

Thank you for the info. I will go back to our solicitor but I don’t hold out much hope. And having to do it all from UK isn’t helping.

Acer, it might be helpful if you can explain exactly how "upgrades to contents and minor structural improvements...could be used to offset the CGT position"? Do you perhaps mean these were paid for sperately by the buyer, in the way you explain (correctly) that you can negotiate to receive a seperate payment for fixtures & fittings, in order to keep the sale (escritura) price of the actual property down?

Of course, in the good old days  one could be "flexible" in how much was actually declared on the escritura - the rest simply paid under the table in a brown envelope (with the full knowledge of the notary!) 

But I think all this is academic for Jbp396 now anyway, since the deal is already done & dusted. Just make sure that your solicitor has all the relevant bills from the purchase (and sale) that can legitimately be deducted i.e. transfer tax, notary fees, land registry fees, legal fees, estate agent commission etc. etc.

Yes, passed all the relevant invoices etc to the solicitor. I certainly know how things used to be done. Our previous sellers wanted us to pay €10k for the furniture, which to be honest, was so awful we had it all chucked as soon as we’d moved in. We are trying to do everything by the book, but were definitely told at the time that the improvement work we had done - installing air con, double glazing and hot water tank etc, would be deductible. This doesn’t even cover most of what we spent, as we refurnished the whole apartment and sold it lock stock and barrel. Perhaps we should have tried to do a separate deal ourselves for the furniture, but at the time we agreed the sale, we were still under the impression we could offset what we’d spent on the improvements. You live and learn.