90,000 Britons could reap Costa tax rebate

Published 18th Nov 2009

Up to 90,000 Britons who have sold a holiday home in Spain in the past 12 years could be owed thousands of pounds by the Spanish tax authority.

During that time, the price of holiday homes in Spain enjoyed a huge boom, with prices peaking in 2007.

But while the locals paid just 15 per cent in capital gains tax (CGT) on their profits when they sold, Britons and other non-residents were charged a hefty 35 per cent.

Experts estimate the homeowners who sold since 1997 could be due an average £13,500 tax refund.

The European Court of Justice has opened the door to this huge tax rebate for nonresidents by ruling that the tax regime was 'unlawful and discriminatory' to other EU citizens.

This latest ruling paves the way for tax rebates totalling £283million, according to calculations by foreign currency specialists HiFX.

The ruling applies to homes sold after 1986, when Spain joined the European Community, but the differences in the level of CGT charged to Spanish and UK nationals mean that rebates are only due to those who sold from 1997 onwards.

Someone making e100,000 profit on the sale of their holiday home, for example, would pay €35,000 in tax if they were British, but only €15,000 if they were Spanish residents - a massive 133 per cent difference. So they would be entitled to a rebate of €20,000 (£17,680).

In addition, they can claim interest on the amount of 6 per cent a year. Spain's two-tier CGT system was changed to a single rate of 18 per cent for all in 2007, after the Spanish High Court found in favour of a British couple who argued that they shouldn't have been charged more for selling their holiday home.

But at that time the tax authorities allowed only claims for tax rebates going back to 2004.

Now the limit for claims has been extended. HiFX estimates the average claim could be £13,370.

Spanish lawyer Emilio Alvarez of Valencia-based Costa, Alvarez, Manglano & Associates, who is handling hundreds of claims, says: 'There is a conflict between the European Court and our domestic procedure, which has a statute of limitation of four years.

'The Spanish legal procedures are complex. We are concerned that the authorities will reject claims. They may force people to go to the Supreme Court to uphold their claims.' The Spanish authorities will hold proof of how much tax non-residents paid originally on their sales.

Mark Bodega of HiFX says: 'You need to seek proper legal advice as it's not simply a case of filing a claim with the Spanish tax authorities.'

The amounts owed will be boosted by the exchange rate as the euro has soared 27 per cent against the pound in the past two years.

However, it is not easy to calculate exactly how much you will receive as you still have to allow for CGT in Britain. Under UK tax rules, if you are taxed less overseas than you would have paid here, then you have to pay our taxman the difference.

So once you receive your refund from the Spanish you may have to hand some back to HM Revenue & Customs.

Until April 2008, the top rate of CGT was 40 per cent but rates were tiered - the longer you'd held the property, the less tax you had to pay. Everyone has an annual exemption from CGT which they can set against their gain before tax has to be paid. This amount rises every year.

Those most likely to gain are basic-rate taxpayers and those who owned their property for more than five years.

30-year-old Donna lived in Spain from 2002 to 2006 when she worked as a solicitor in Gibraltar. Donna, who now runs lettings agency Vanilla Lettings, in her home town of Bath, sold her three-bedroom villa in Alcaidesa having made a €100,000 profit. She would have paid around €35,000 in tax as a British resident. But a Spanish resident would have paid just €15,000 in her position. As a result she she be entitled to a rebate of €20,000 (£17,850) - though some of this may have to be repaid to the UK taxman.

Donna says: 'I had made tentative inquiries before about reclaiming the tax because it was so much. I basically only took home about €3,000 profit from the sale, despite the property going up in value by €100,000. There were so many taxes and charges. 'I'm going to pursue this because its unfair to have paid so much tax when I didn't need to.'

Source: ' Daily Mail '

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