FHL abroad diversion of rental income

what needs to be declared for CGT & IT

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client has FHL in Canaries. Spanish gov wants him to pay 25% of gross rental income and comply with their VAT. his local accountant has told him to form a Spanish company and route all income thru that where he can claim all expenses!  he pays himself a salary based on the net at the end of the year. my concern is that there may be CGT on transferring the rental income to the new company, am I correct and if so what is the best way of calculating any gain? any other pointers are most welcome.

Merry Christmas to one and all

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By David Ex
22nd Dec 2023 15:23

Not clear what the current position is. You say “he pays himself a salary based on the net at the end of the year” so is the property currently owned by a UK company?

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Replying to David Ex:
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By Bobbo
22nd Dec 2023 19:01

Agree this definitely needs clarification.

Pays himself a salary implies property is owned by an entity other than "the client".

Reference to CGT and IT implies property is owned by "the client".

"The client" being an individual in this case.

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Replying to Bobbo:
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By carnmores
22nd Dec 2023 19:59

Thank you D & R. The property is owned by client personally. Spanish accountant tells client to pay rental income into a new Spanish co just set up as the company can deduct expenses. As the right to receive rental income has been apparently transferred to Spanish new co owned by client for zero is there not CGT on the discounted value of future rental income

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RLI
By lionofludesch
22nd Dec 2023 16:32

Spanish threshold for IVA registration is €1. I'd imagine that your client should have registered from the instant he started letting this property.

I've never actually dealt with a Spanish holiday let but I thought that Spain wouldn't allow foreign property owners and the general plan was to form a Spanish company to buy the property. If the client already owns the property personally, it seems I was wrong about that.

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Replying to lionofludesch:
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By carnmores
22nd Dec 2023 16:59

I doubt you are wrong i think he has been badly advised in spain. he has owned the property for some time at least 10 year before Brexit . And as it was in the Canaries the local office didn't get round to checking such matters until after brexit and receiving data from the online letting companies

and a very merry christmas to you all

nick

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By Tax Dragon
22nd Dec 2023 20:45

Something you might need to be wary of is a situation where there's a company paying tax in Spain and an individual liable for tax in the UK, on essentially the same income, potentially with no credit for one tax against the other.

As I don't understand what's happening here, and don't know Spanish tax, I don't know whether that is a risk or, if so, how big that risk is.

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Replying to Tax Dragon:
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By carnmores
23rd Dec 2023 14:32

Merry Christmas Dragon
That's exactly it !
Nick

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By richard thomas
23rd Dec 2023 15:36

If this truly is a transfer of the income but not of the underlying asset, then you need to look at Chapter 5A Part 13 ITA 2007. This was my last legislative project in HMRC before I retired and was intended to be a first real attempt at principles-based anti-avoidance legislation (note in particular s 809AZB(2)(b) ITA).

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Replying to richard thomas:
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By carnmores
23rd Dec 2023 15:52

Thank you Richard. I will read. Merry Christmas. N

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