We all know that if we own a property in addition to our main home in the UK, be it a rental or second home, we are likely to suffer Capital Gains Tax (CGT) if we sell at a profit. Most clients though, do not realise the same applies where the second property is overseas.
Buying a Holiday Home
This is probably the simplest scenario. A subsequent sale at a profit will potentially give rise to a CGT liability in the UK, and similarly in the country the property is located in. A Double Tax Treaty should allow the tax paid overseas to be set off against the UK liability.
For example, non-residents in Spain pay a flat rate of CGT at 19%, and in France it is also 19%, along with social charges of 15.5% (for individuals). In Portugal, 28% CGT applies, though you can opt to be taxed as a Portuguese resident instead, where 50% of the gain is exempt, with the remaining gain added to your worldwide income to calculate the applicable rate.
Other local taxes can arise simply on owning a holiday home; France has two taxes, the taxe d’habitation, and the taxe foncière, both based on a notional rental value multiplied by a tax rate fixed locally. The former is payable by the occupier, and the later by the owner (though both could apply to the same person). Similarly, in Spain there is the Impuesto sobre Bienes Inmuebles (IBI), payable on residential property available for your use. The amount charged will be the rental value multiplied by a tax rate fixed locally. Portugal has the Imposto Municipal sobre Imóveis, which is like Council Tax in the UK, with rates varying from 0.3% - 0.8%, depending on the type, location and age of the property.
Moving Abroad but Keeping Your UK Home
It is quite common for UK expatriates to retain their UK home when they move overseas, as a fall back option, to rent, or as a foothold in the UK property market, but what are the tax consequences of a subsequent sale?
As you will be resident overseas it is the rules, reliefs and exemptions which apply in the jurisdiction of your residence which will be applicable on the sale, though these are often completely different from those in the UK.
Spain and Portugal offer relief from tax if:
1. You lived in the property for a continuous period of at least 3 years; and
2. You buy the new main home within a period of 2 years (Spain) or 3 years (Portugal), from the date of the sale; and
3. Most importantly, the whole sale proceeds are reinvested in another main home (downsize and a portion of the gain will be taxable).
The final point above might be difficult to satisfy. In France, full relief applies if the property is sold within one year of non-occupation, regardless of whether the proceeds are reinvested.
Please note, go beyond the one, two or three year limits set out above, and the full gain could become chargeable (though other reliefs could apply depending upon how long the UK home was owned, and the age of the vendor).
Any tax payable in the UK will be available for offset in the respective jurisdiction.
Wealth Taxes apply in Spain and Portugal depending upon the value of the property, regardless of residency. In France, these only apply if you are resident.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
Blevins Franks has been providing specialist tax and financial advice to British expatriates across Europe for over forty years. They have published a series of guides and books which examine the key tax and wealth management issues for UK nationals in France, Spain, Portugal, Cyprus and Malta, as well as Brexit and pension guides. The guides can be found here.
Further information on this subject and similar areas can be found at on the ICAEW Personal Financial Planning Community pages here. The community is open to both ICAEW members and non-members free of charge.
You can contact Blevins on 0044 (0)20 7389 8133 or visit their website here