Moving to Spain to avoid CGT on UK property disposals

Question:

I have a number of rental properties that I want to sell.

The capital gains tax on these would be substantial, even taking account of the depressed property prices.

I've got a holiday Vila in Spain were I am thinking of moving to.

If i move to Spain for 5 years will i be able to avoid paying the capital gains tax in the UK? If so, would i be liable to pay Spanish capital gains tax and how would the double tax treaty affect me?

Are there other country's that i would be better to move to? Is five year the minimum time i would need to move abroad for?

Answer:

If you become non UK resident for at least five tax years and sell your UK properties during this period you would be able to sell the UK properties free of UK capital gains tax.

The downside is that if you were living in Spain for this period you would be Spanish resident and under the terms of the tax treaty between the UK and Spain, this gives both the UK and Spain taxing rights over land and property.

Whilst you would not be taxed in the UK providing you met the five year requirement above, Spain would retain the right to tax. (I understand that the CGT rules in Spain would tax the gains at 18%).

Therefore if you wanted to avoid CGT completely you would need to become non UK resident, but resident in a country that does not tax the gain. There are a number of such countries in Europe (eg the Isle of Man, Channel Islands, Cyprus, Gibraltar and potentially Malta).

Five years is the minimum period you would need to remain non UK resident. If you sold the properties and then returned within the five tax year period the gain on the properties would be charged to CGT in the tax year of your return.

About the Author

He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

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