Inherited property in Spain

[Dozycuntlaters]

Hi all, wasn't sure what the best board to post this was, have posted on Investments as well but think this has more traffic.

My lovely dad died almost three years ago and me and my 2 siblings have inherited his apartment in Spain. We are now having to decide whether to rent it out to help pay the running costs and I want to do things legally and declare tax in Spain. My sister has one more year of tax credits and is concerned that the rental money will affect this. The money will be paid into our Spanish bank account, tax returns will be submitted to our spanish accountants and the tax will be paid in Spain. So technically no income will be coming into any UK bank accounts and we are going to keep the money in Spain as it purely is to keep the apartment running. It will not be rented all year round, just a long winter let for 5 months or so.

Does anyone know if this has implications with the HMRC and does she need to tell them this is what is happening? If she doesn't tell them, is there any likelihood the HMRC would know she is paying tax in Spain? Such a minefield, and I wish we could just sell the place!

TIA

I just replied to your other thread 😊

Assuming you all live in the UK and are from the UK, yes the Spanish rental income will be taxable in the UK, so you’ll need to do self assessment.

You should get a foreign tax credit for the tax you pay in Spain though.

Don’t know rules about Spain, but if you’re renting property in uk, you declare your income from it to HMRC, but you also declare legitimate expenses that are approved by HMRC. This will include running costs.
so if she is not actually making profit form it, she’ll have no tax to pay anyway.
I assume that’s true of Spanish tax anyway that they’d take

shed need to be clear what expenses she incurs are tax exempt and which aren’t

If you’re regarded as ‘Resident in the UK’ for tax purposes, then yes you owe income tax on your worldwide income whether you leave it in a foreign bank account or not. As the Spanish bank will know you are a UK resident for tax purposes then there will be information sharing regarding that under common reporting standards.

Up to you but I have owned a property in Spain for around 16 years and never declared any of the income here.

Just to clarify, 2 of us live in the UK so non EU and 1 of us lives in Latvia which is of course EU. So the UK residents do the tax return and tax payable is 24% of the income with no deductions allowed. for the UE resident it's 19% tax paid and deductions such as community fees, electric etc are tax deductible.

I know if we pay tax in Spain we don't pay tax on that income in the UK, just wondering what the communication is like between the Spanish inland rev and UK inland rev.

@Hoppinggreen - does the money come into a UK bank or Spanish bank? Is it a long term tenants or lots of short term ones?

I know if we pay tax in Spain we don't pay tax on that income in the UK, just wondering what the communication is like between the Spanish inland rev and UK inland rev.

So you are checking if you can get away with avoiding UK tax..?

It’s not “up to you” if you pay UK tax on the income or not. If you are UK resident you have to pay tax on your worldwide income, it’s simple. There are some pretty hefty penalties for not doing so and HMRC are really cracking down on avoiders.

I’ve dealt with cases like this (I’m a tax adviser), it’s honestly not worth the risk.

Can you all just use it for holidays until your sisters tax credits finish. Then sell and split the money. If there are fees for the resort it's on. Can you and the other sibling pay the sisters share and then get the money back out of her share of the flat once sold.

Common Reporting Standards are nothing to do with EU, they’re world wide. Banks are obliged to report to the local tax authority the customers with a Financial Account who are tax resident in one Reportable Country but with Financial Accounts held in another. The local tax authority will then pass this information onto the Reportable Country where it has been established that the customers are resident for tax purposes. Whether or not any tax authority ever bothers looking at an individual customer’s small rental income in Spain is another matter of course but if your question is
Will anyone know? The answer is yes.

As pp have stated it is foreign income so you have to do a self assessment to declare it to HMRC. You convert it into £ by using the HMRC currency conversion monthly publications. So each months rent in euros, you need to look up the applicable HMRC publication for that month to convert the income from euros to £. You then add each month to get the annual £ income.

I know if we pay tax in Spain we don't pay tax on that income in the UK,

No, that is not true at all. The source country, Spain, charges their taxes, and then this is counted as a credit towards the U.K. tax you would owe if the income were sourced in the U.K. So what HMRC does is they calculate the tax you’d owe if it were part of all your income(UK + Spain), then they subtract the foreign tax you paid Spain and you owe the difference to HMRC. Usually you owe because Spain won’t count your U.K. income to determine which tax bracket you are in, so you’d likely be in a lower tax bracket for paying them tax, but a higher one for the U.K. as the U.K. will count the Spain income as part of your total income.

To get this credit, on the self assessment you tick the foreign tax credit relief box and put in there how much tax you paid Spain.

* I know if we pay tax in Spain we don't pay tax on that income in the UK, just wondering what the communication is like between the Spanish inland rev and UK inland rev.

So you are checking if you can get away with avoiding UK tax..?*

@Pinkitydrinkity No not at all, i am trying to understand whether if we pay tax on the rental money in Spain and the money stays in Spain as it is purely to keep the apartment going whether we have to tell HMRC here. Any rental money would be paid in Spain, the money would never hit the UK so not really sure why we would pay tax in the UK too. I'm not trying to avoid any tax, I'm just trying to understand it as my sister is stressing regarding her tax credits. If it was down to me I would sell it now and be done with it but sadly 2 other siblings are involved and all want different things.

@MrsCarson In an ideal world then yes. If we keep the property 5 years from date of inheritance we aren't liable for inheritance tax so if it were down to me I would keep it for the 5 years and then sell. But it's not my choice and I'm stuck between my brother and sister and it's so blooming stressful.

Thanks all, its such a minefield. I just about make ends meet as it is, so having to put towards the upkeep of a property I don't want is a nightmare.

It doesn’t matter whether the money stays in your Spanish bank account or is transferred to a U.K. bank account, you still owe income tax on it.

Have you gotten legal advice about U.K. IHT? If your dad was ordinarily resident in the U.K. or had only been a Spanish resident for less than 3yrs (I think thats the requirement), then the Spanish property may also be subject to U.K. IHT in the sense that its value counts towards the value of his estate.