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Foreign Property Investors Overpaid Spanish Tax

by Ulrika Lomas, Tax-News.com, Brussels

11 April 2008

The Spanish government could soon be facing claims for over-paid taxes from thousands of non-residents who sold property there prior to a change in Spanish capital gains tax rules.

Between 2003 and 2006, Spain charged a dual rate of tax on capital gains - 15% for residents and 35% for non-residents - but was forced to equalise the rate following a ruling by the European Commission, which argued that the higher rate was discriminatory against foreign investors.

According to Spanish legal firm Costa, Alvarez, Manglano & Associates, those who sold their properties prior to the rate increase and were charged a tax of 35% on any gain are entitled to reclaim 20% of the total CGT paid, plus approximately 6% interest annually from the time the CGT was originally paid. They estimate that the average refund will total between EUR20,000 and EUR30,000.

Spain is a popular location for second and holiday homes, and it is believed that 4,500 UK residents alone who sold property prior to the change in the tax law may have a case to reclaim overpaid tax - in addition to the thousands of other Spanish property owners from all over Europe.

HiFX, the currency exchange broker, estimates that between 2002 and 2006 the average UK family selling property in Spain paid a tax bill of GBP14,523 - more than GBP8,000 higher than the average tax bill paid by Spanish residents.

Costa, Alvarez, Manglano & Associates is currently spearheading legal action against the Spanish government.

Qualifying litigants must: have sold a Spanish property between May 2004 and December 31st 2006; not have been a fiscal resident of Spain when a property was sold; paid any CGT due to the Spanish authorities; and must have sold a property as an individual, not a company.

If it goes ahead, the legal action is expected to become the largest-ever tax claim against the Spanish government. However, it could take two years before a decision on the case is reached.

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