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Capital Gains Tax - Spanish Property

Spanish Property Sale - Capital Gains Tax Allocation

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A long standing client (partnership with him & his "wife" of 40+ years) recently has £260k deposited into their joint business current account from the sale of their Spanish home that we knew nothing about (purchased 1992) - it was used for his family only so no rental income. The purchase was in his name despite it being a joint home - historically he always did things in his name - it was paid for from the business account he says, but it was before my time & records. Can the capital gain be treated as joint and thus 2 lots capital of allowances?

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By Accountant A
02nd Oct 2019 15:04

Yorkshireblue wrote:

Can the capital gain be treated as joint and thus 2 lots capital of allowances?

No. The window for tax planning closed prior to the sale.

EDIT: Although, having thought about it, Justin may be able to advise on an implied trust angle which is beyond my limited understanding.

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By Accountant A
02nd Oct 2019 17:33

Yorkshireblue wrote:

it was paid for from the business account he says?

Hopefully dealt with as drawings ....

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Replying to Accountant A:
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By Yorkshireblue
02nd Oct 2019 18:57

That would be a yes.

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By unearned luck
03rd Oct 2019 01:14

What is your evidence that the beneficial ownership is joint? The fact that it was bought in his name alone suggests that he considered it to be his sole property unless there is evidence to the contrary, preferably dated 1992. How has the disposal been presented to the Spanish tax authority sole or joint?

Does Spanish law recognise trusts? Spain is probably a roman law country, so poss not. Google might help here.

I know its too late to plan, but: marry. gift. sell and save CGT on £12K plus poss some gain taxed at 18%.

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Replying to unearned luck:
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By Tax Dragon
03rd Oct 2019 06:28

Cheap skate. How much did you not spend on your wedding? :-)

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Replying to Tax Dragon:
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By unearned luck
05th Oct 2019 16:13

The marriage allowance worth, currently, a princely £250 for some taxpayers is meant to encourage marriage, so there must be, in the government's view at least, a lot of us cheap skates.

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Replying to unearned luck:
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By Tax Dragon
06th Oct 2019 09:08

unearned luck wrote:

The marriage allowance worth, currently, a princely £250 for some taxpayers is meant to encourage marriage.

I would say support, rather than encourage.

And I differentiate marriage from wedding.

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Replying to unearned luck:
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By Tax Dragon
06th Oct 2019 15:27

unearned luck wrote:

How has the disposal been presented to the Spanish tax authority sole or joint?

If whitevanman is right, this doesn't matter. It could be that it's all taxable on him in Spain and taxable equally in the UK.

Of course, "wife" won't get tax credit for Spanish tax payable by "husband", if it turns out that way.

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By whitevanman
06th Oct 2019 09:17

What makes you think it was not jointly owned? They were married and "the law" would probably have taken a different view (especially on divorce for which there is no support or encouragement).
Remember, CGT is concerned with beneficial ownership and not legal ownership. So the name on the deeds is somewhat irrelevant.

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Replying to whitevanman:
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By Tax Dragon
06th Oct 2019 11:29

whitevanman wrote:

They were married and "the law" would probably have taken a different view....

Your tenses have lost me. Or is there a missing "if" and a surplus "and"?

It's a lame argument anyway. None of: a right to sue someone; a right to compensation; or a right to alimony amounts to a beneficial interest in a person's assets.

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Replying to Tax Dragon:
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By whitevanman
06th Oct 2019 11:45

I don't like reducing discussions to personal attacks but it does seem to be your way.
First, read my post again, from the start. It is all past tense. There is no surplus or missing word.
Second, read the OP.
They have been married 40+ years. They (appear to) have been in partnership at the time of purchase. The money came from a business account and the proceeds were paid into a joint account. The only other factor is that the purchase was in the husbands sole name but that is how he did things.
I ask again, what in all that makes you ( or anyone) believe the beneficial ownership lay solely, with the husband?
The most important factors would probably be the source of the funding and receipt of proceeds. Oh and there is the question of what the parties themselves say and the evidence they would give at tribunal. My money is on joint ownership but you may advise your clients as poorly as you wish.

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Replying to whitevanman:
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By Yorkshireblue
06th Oct 2019 12:11

Guys, please don't fall out over the question. My clients are not married hence the inverted commas around "wife" although they have been as husband & wife in all of their business life and in a formal equal Partnership. Drawings paid for the property and the sale proceeds deposited straight to their business current account by their Spanish solicitor - all documented. Nothing untoward or hidden.
Thank you all for your comments and guidance.

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Replying to whitevanman:
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By Tax Dragon
06th Oct 2019 14:35

Seems I misread your comment only because I hadn't misread the OP. I meant no personal attack [offers hand] and rereading what I wrote I can't see there was one [keeps hand extended]. On the other hand your closing comments do give off an odour of hypocrisy [despite which, hand stays outstretched].

whitevanman wrote:

I ask again, what in all that makes you ( or anyone) believe the beneficial ownership lay solely, with the husband?

Separation of beneficial and legal interest might not work in Spain the way it does over here. I don't think one can simply ignore the jurisdiction governing the ownership of the property in question.

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Replying to Tax Dragon:
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By whitevanman
06th Oct 2019 14:53

Hand accepted and apologies for closing comment.
I suppose the whole point is that, whatever the jurisdiction in which the property is sited, it is UK law that governs UK taxation. It may well be that a corporate entity cannot own property in a particular jurisdiction but that does not stop the director of a UK company holding the asset in trust (and UK tax being charged accordingly). The concept of beneficial ownership looks behind the legal niceties in order to tax what I might call the real owner. In this case, following that same approach, it is likely the facts would support (and could certainly be argued to support) joint beneficial ownership.
My main point is that the legal ownership is not determinative for UK CGT purposes.

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Replying to whitevanman:
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By Tax Dragon
06th Oct 2019 15:20

Apologies accepted.

The "real owner", as you put it, becomes clear when push came to shove (that's what lay behind your divorce point, I think). If possession is 9/10ths of the law in the UK, which does recognise a contrary beneficial interest, I suspect it's closer to 9.9/10ths in Spain, which has not embraced trust law. I (now) understand what you're saying, but it might be hard to hold to your line on an enquiry.

However, I know enough to know that I don't know enough to argue about UK law. [I think I said that right!] Since this case and your corporate ownership example have international aspects, I really must leave you and others to it.

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Replying to whitevanman:
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By unearned luck
09th Oct 2019 02:01

whitevanman wrote:

Hand accepted and apologies for closing comment.
I suppose the whole point is that, whatever the jurisdiction in which the property is sited, it is UK law that governs UK taxation. It may well be that a corporate entity cannot own property in a particular jurisdiction but that does not stop the director of a UK company holding the asset in trust (and UK tax being charged accordingly). The concept of beneficial ownership looks behind the legal niceties in order to tax what I might call the real owner. In this case, following that same approach, it is likely the facts would support (and could certainly be argued to support) joint beneficial ownership.
My main point is that the legal ownership is not determinative for UK CGT purposes.

I think that you are wrong to suppose that the law of the country of situs is not relevant to UK tax liabilities. For example, see the Archer-Shee* cases, which resulted in NR IIP trusts being classified as either 'Baker' or 'Garland' after the inspectors of taxes who sought to tax Mr A-S on income from such trusts.

Also the one-party-holding-Spanish-property-on-trust-for-another-party argument failed to save UK residents who bought properties in Spain via companies from a BIK whenever they stayed in 'their' villas. The law had to be changed . https://www.ft.com/content/ea7c112c-33e9-11dd-869b-0000779fd2ac.

Dear OP. Buying properties in Spain via limited companies is very common for the reasons given in the link. You should check a) what has been sold (shares in a company or land) and, if the land has been sold by a company by what mechanism was the cash paid to the shareholder(s) (dividend or distribution on winding up).

*By the way, Mr Archer-Shee and his son were the people who inspired Rattigan's play The Wilmslow Boy.

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By Adam12345
06th Oct 2019 16:44

Are the proceeds just sitting in the business account? If so, how have you treated these, debited to each partners accounts respective of their beneficial interest? Or has the husband (that isn't actually a husband) taken all the sales proceeds?

I suspect that if they ever separated, the husband (that isn't actually a husband) would be arguing that there is no beneficial interest for the wife (who actually isn't the wife).

It is a very subjective area, you could ask 10 people, and 5 would say the 'wife' has a beneficial interest and the other 5 wouldn't, but the fact that they are not married doesn't help your client's stance in my opinion.

Furthermore, have you considered the availability of double tax relief, especially if the 'husband' was responsible for the Spanish equivalent of CGT?

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Replying to Adam12345:
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By whitevanman
06th Oct 2019 16:40

As with so many things, the answer lies in the specific facts of each case.
We could have a long discussion about beneficial ownership and the rights of couples (there is no doubt that for unmarried couples there can be significant differences in law).
The fact is that most problems arise when the parties (call them husband and wife for now) disagree.
If however they do not (and the current case would presumably be one of those) it would be fairly simple.
The husband and wife each say the beneficial ownership was shared 50/50. They point to the purchase having been paid from partnership profit, they refer to any costs having been borne equally and the sales proceeds having been paid into their joint account. They point out the use of the property for themselves and their families only. They then say, "Now Mr Taxman what proof do you have to contradict us"? Answer "None".
HMRC are not really in the business of pursuing lost causes and any enquiry officer pursuing such a course should get no support.
As to DTR, I am not entirely sure, though it may not matter in practice.
Again the argument would be that the husband held the asset in a constructive trust and paid the Spanish tax in that capacity (even though the notices etc would, presumably, be in his sole name). An argument to split the tax equally might work (particularly if it had been "borne" jointly). If not, it is possible the tax would be less than the UK CGT on half the gain (good luck with that).

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Replying to whitevanman:
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By Tax Dragon
06th Oct 2019 17:07

An interesting point can arise if, having won the tax argument, the couple were to fall out. Half of everything is his, half hers... it's what they told Mr Taxman, so it must be so!

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Replying to Tax Dragon:
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By whitevanman
06th Oct 2019 19:33

Very true but having done 40+ years together it might be worth the gamble.

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Replying to whitevanman:
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By Tax Dragon
06th Oct 2019 21:57

Is it the advisor's place to gamble with the client's money?

Whether or not you were using that expression flippantly, it is a serious point. Sure, you'd be unlucky if it went wrong, but when it does go wrong (and at some point it does, sometimes due to an unexpected death, sometimes due to a couple unexpectedly splitting up after 40 years, sometimes due to a referendum), it tends to go horribly wrong.

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Replying to Tax Dragon:
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By whitevanman
06th Oct 2019 23:23

The advisor isn't gambling. The decision is the clients. The adviser simply outlines the pros and cons. If I were the client, I would know whether I thought the relationship was "safe" and act accordingly. Of course I could be wrong (and I may suffer a loss) but I could get run over crossing the road. We all have to take the chances with which we are comfortable.

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Replying to whitevanman:
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By Tax Dragon
07th Oct 2019 00:54

My mistake, I must have misunderstood you again.

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Replying to whitevanman:
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By unearned luck
09th Oct 2019 02:50

"The husband and wife each say the beneficial ownership was shared 50/50. They point to the purchase having been paid from partnership profit"

[so what says the inspector, even it true the purchase would have been made using drawings],

"they refer to any costs having been borne equally"

[prove it- the payment of a bill from a joint bank account does not = all parties to that account having borne the cost]

"and the sales proceeds having been paid into their joint account"

[on this argument whenever a married person pays his or her salary into a joint account it becomes the couple's joint income].

"They point out the use of the property for themselves and their families only"

[that use would be the same regardless of ownership].

"They then say, "Now Mr Taxman what proof do you have to contradict us"? Answer "None""

[this comment misunderstands where the burden of proof lies should the matter reach the FTT. HMRC merely have to make submissions pointing out (from their point of view) the weaknesses and errors in the taxpayer's arguments and to make any counter arguments they wish, they don't have to prove anything. When it comes to disputes over the tax liability in a DA or in a closure notice the taxpayer has to prove his 'innocence'; HMRC don't have to prove the taxpayer's 'guilt'. The burden is the other way round when it comes to proving that a DA is competent and in penalty cases (other than when the taxpayer claims a RE)].

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