A year ago I put down a 30% deposit on an 'off plan' apartment in Spain. It will be built in October at which point I will decide whether to get a mortgage and keep it or sell it before completion - at a profit I hope!

Will I have to pay CGT on the profit if I sell the contract without actually owning the property and will I have to declare the transaction to the Inland Revenue?

Daniel Says

Many people have been misled concerning the taxation in Spain and the UK of Spanish ' off plan' investments.

In Spain, if you have been registered with the legal title to the property (and your Spanish Lawyer should have done so), then you are selling an interest in Spanish property. Even if you are not, you will still be taxable in Spain, as you are dealing with a contract right over Spanish property. This is subject to 35% Spanish CGT.

The only possible exception is if you are actually just purchasing a share in some form of foreign investment vehicle outside Spain that owns the Spanish property (and this would be very risky!).

In Spain, the Purchaser must withhold 5% of the purchase price and pay it over to the Spanish tax authorities.

You then have to file a tax return in Spain and if the 5% is more than the 35% you will be entitled to a repayment.

In the UK you are taxable on your world-wide income and gains. So, you would get a credit for the 35% Spanish CGT and would, if you are a higher rate taxpayer, owe a further 5% to the Inland Revenue here, to make it up to 40%. You need to declare the gain here and to claim credit for the Spanish tax paid.

In the event that you do not pay Spanish tax, you would then simply have to pay 40% in the UK.