CGT and other taxes
Dear Sir,
About 4 months ago we sold out holiday home in Spain. 3% of the sale price was retained against our CGT liabilities, although we knew that were wouldnt´ be any, as we paid more than what we sold it for.
Our lawyer applied for the refund, and he informed us that he has received a notification from the tax office, which says that we owe them money for non-resident taxes.
We have always paid any tax that has been asked from us, so I dont´ know where this comes from. We still have copies of all the local rate payments, rubbish collection etc. Surely this should be sufficient proof.
Answer
As a non-resident property owner, you are obliged to pay a tax every year. This tax is self assessed, so the tax office will not send you a demand for payment.
This tax has to be paid by the 31st of December, for the previous year, and you either have to complete the tax form yourself or appoint a Fiscal Representative to do it for you.
Once completed, it has to be filed and the payment made.
Some people receive a request from the tax office, asking them to prove that they are either resident in Spain for tax purposes or non-resident. I know it seems odd to have to prove to the tax office that that one is a resident for tax purposes, since the tax office has all the records anyway. But I suppose it is a gently reminder that one, if non-resident, is obliged to pay non-resident tax.
This tax is based on the rateable value of the property (valor catastral), a small percentage of this is considered to be income and this is what is taxed.
When you apply for a refund of the 3%, the tax office checks if you are up to date with your taxes. Since they now know you are non-resident, because 35 has been withheld, they check to see if you have been paying the nonresident tax.
Due to the statute of limitations, the tax office can only go back 4 years to demand unpaid taxes, and this is what they are after.
You will have to complete, file and pay for the past 4 years, and once they receive the funds, your refund application will be refunded to you.
If you dont´ file and pay this tax, the tax office will make the calculation themselves, but it takes a lot longer for them to do it. Our recommendation would be for your tax consultant to file these for you and deal with the refund application once it has been done.
You will be liable to pay a fine for late payment, plus a surcharge and possibly interest.
To all our readers who are non-resident, our advice would be to check if you have been paying this tax and if you haven’t, to contact a tax consultancy firm to deal with it. If is a lot cheaper to pay as you go than to wait and face fines, surcharges and interest at a later date. The tax man nearly always get the tax.