Spain - capital gains tax on property

There have been quite few changes over the past 6 months or on the CGT position in Spain. For most the key implication of this will be non Spanish residents that are selling Spanish property. Under the 'old' regime they'd have been taxed at a a whopping 35%. This was a massive rate and out of proportion to most other jurisdictions that had other reliefs etc to reduce the effective tax rate (the UK for instance wouldn't even tax non residents selling UK property subject to the anti avoidance rules). Anyway, the EU didn't like the 35% CGT rate either and they've now been forced to reduce it to 18%. The EU challenge was on the basis that the rate of CGT for Spanish residents was only 15%. In this age of nil discrimination this was seen to be too extreme so they've set a standard capital gains tax rate at 18%. If you're a UK resident as noted above the main implication will be if you sell Spanish property. Previously you'd have been taxed at 35%, now you can get away with 18%. Having said that you'll need to consider your net position in any case. If you're a UK higher rate taxpayer and paid CGT at 40% whether the Spanish rate is 35%, 18% or even 1% wouldn't make any difference. Under the terms of the UK-Spain tax treaty both the UK and Spain could tax the gain, so you'd be hit with the 40% UK rate and any Spanish tax would just be offset. Unless you're a non UK domiciliary (or 'inpatriates' as they are sometimes now called)and retain proceeds overseas you'll be subject to UK taxes first and foremost. In practice though any UK CGT may be much less than 40%. Taper relief can reduce the effective rate of CGT to 24% after ten years of ownership, and if the gain is relatively low the annual CGT exemption (currently £9,200) could ensure the effective CGT rate for a higher rate taxpayer was around 20%. In this case the Spanish tax reduction is a net tax benefit as it will reduce the amount of tax you actually pay. It's worthwhile noting that there are loads of other reliefs and exemptions to take into account for Spanish tax purposes particularly where you bought the property a long time ago. One of the old chestnuts is that if you bought it before 1986 its free of CGT. Well this isn't true anymore as the gain would be apportioned between the pre and post Dec 2005 ownerhship period with only the former being exempt.