For expatriates, taxation can be a major issue impacting both on property back in the UK and on newly purchased property in Spain, France or other countries in Europe and beyond.
However, there are some steps to take that can ensure all of the necessary regulations are adhered to, as well as reducing the chance of facing an unexpected tax bill on one or more properties – abroad or at home – at some point in the future.
Buying property in Spain
Guidance from the Foreign & Commonwealth Office (FCO) notes the process that should be followed when buying property in Spain.
In terms of Capital Gains Tax, the most important consideration is to make certain that the amount paid for the property is the same as the value listed on the escritura, or deeds.
Without doing so, buyers are told that they could face a Capital Gains Tax bill of their own for their new property in Spain.
Payments should also be made only via a reputable banking provider, the FCO adds.
"British nationals purchasing property in Spain are recommended to deal only with established and reputable estate agents, or with other contacts whom they know to be reliable and genuine," would-be expatriates are told.
Engaging an independent local lawyer who speaks good English is a further precautionary measure recommended to avoid any unexpected surprises and ensure the process runs smoothly.
Selling property in Spain
While it may seem counter-intuitive for people selling property in Spain, there can actually be a UK tax liability arising from the transaction.
HM Revenue & Customs explains that a UK resident selling property in Spain or anywhere else in the world could have to pay the tax.
Exceptions do apply, however, including if the property was the individual’s main domicile throughout the course of its ownership.
Should the owner have two homes, they can nominate one as their primary domicile for the purposes of Capital Gains Tax – even if it is not the house in which they spend the most time.
Disposing of property in the UK
A final consideration for people making a permanent move is the Capital Gains Tax burden associated with selling property in the UK.
HM Revenue & Customs notes the exemption associated with being temporarily non-resident in the eyes of the UK tax authorities.
In order to qualify for this, the owner of the accommodation must have been neither "ordinarily resident" nor "resident" in the UK for up to five full tax years.
There exists a set of further qualifying factors for this exemption, such as the need to meet residence requirements for at least four of the seven years that led up to the person’s departure.
However, should the criteria be met, the individual should face taxation charged as though any gains or losses occurred upon their return to the UK.
Definitions of residency
Whether or not you are "resident" or "ordinarily resident" in the UK can play a significant part in determining your tax obligations; however, the terms themselves are not clearly defined.
Guidance on the definitions given by HM Revenue & Customs is based on court verdicts relating to the terms and could help to clear up some doubt.
According to the authority, "resident" means that the individual spends some time in the UK in every single tax year – and applies for certain if this time has a duration of 183 days or more uninterrupted.
"Ordinarily resident", meanwhile, is the term applied when the individual is resident in the UK over a number of years.
This means, for example, that a person who is not "ordinarily resident" in the UK could spend 184 days in the country and therefore be deemed as resident for that year alone.
By keeping in mind these definitions and their implications on the purchase and sale of property both at home and abroad, people moving from one country to another may find they are able to safeguard their finances and live their dream.