Once the centre of the European property and holiday home market it seems as though Spain is going though a very difficult time at the moment. Rising debt, rising unemployment and a whole host of issues in the building industry have come together to kill the property market stone dead, but are things really as bad as they sound?

The thread brings a few interesting points into the equation, not least the fact that there are thousands of unsold properties in the region. This has led to problems in the estate agency industry with more businesses than ever closing their doors, thereby reducing the potential sales teams when the market picks up. The Spanish government are also reported to have increased the country’s debt to over £300 billion, a move which will have an impact upon government spending in the immediate future.

On a more upbeat note there are a few posters suggesting that a number of developments are up for sale at a fraction of the original selling prices and there does seem to be some interest. However, the Spanish property market seems to be making a bad name for itself at the moment with many investors being left with partly finished properties as substantial numbers of construction companies hit financial trouble – in line with the sector in the UK.

There is a mixed feeling as to whether the Spanish property market has bottomed out but it would seem unlikely we will see any major recovery until the European and Worldwide economies start to improve.

Summary

Like so many property markets around the world Spain is struggling to recapture the heydays of years gone by. Once the only market which British holiday makers and property investors were prepared to look at it seems that the emergence of other markets in Europe, together with the ongoing credit crunch, has brought the Spanish property market to a halt. There are also concerns that the growing number of unfinished developments will see future investors showing extra caution at what is being seen by some as a throwback to the earlier days of the market when the property sector was dogged by unfinished properties and bad investment advice.

The thousands of unsold properties and the dying estate agency sector is a major concern for investors now and in the short term. There were a number of comments on the post about property developments being sold for a fraction of the original price in order to bring in funds as well as a number of construction companies going into administration and bankruptcy. Interestingly we may well be seeing the ‘panic selling’ scenario which is often the first stage of a recovery and could mark the bottom of the market – or near bottom.

Like so many investment markets it is often the time to look again when EVERYBODY is saying the market has further to fall. How many times have we seen property markets fall just as EVERYBODY is saying it is time to buy?

Spain will always be a very important market to the UK ex-pat community and while the currency exchange rate is not helping in the short term there is no doubt that some investors are on the prowl for value investments at distressed prices. Spain is an interesting market and one worth keeping a very close eye upon.

Read the full thread on the current state of the Spanish property market

Have you made a profit on your Spanish investment? Are you looking to sell up and move? What is your CGT position?

Even though this thread was added back in September 2006 it offers a very interesting timeline with regards to Spanish tax laws and in particular the complicated issue of capital gains tax if you are looking to cash in an investment.

The initial comments in 2006 seem to have alarmed many with the original poster citing the fact they had been advised they would need to pay capital gains tax of 35% on the value of their property. It is unclear as to whether the poster thought this was 35% of the total value, or just 35% of the profit, but it has opened up a useful debate on overseas taxation issues.

In 2006 the capital gains tax rate in Spain for non-residents was 35%, with 5% of the sale proceeds being held by the authorities immediately upon completion of a sale to stop sellers leaving the country without paying any tax due. While the headline figure of 35% has alarmed many, at worst it is only 35% of the actual profit on the investment – so if you bought a home for £100,000 and sold for £200,000 your liability would be 35% of the £100,000. But this is not the end of the story….

You are also able to add the cost of any investment into the property, e.g. you may have had an extension built or work on some of the rooms (assuming that you have receipts). This will further increase your cost figure and reduce your property cost. After calculating your CGT liability you may have to make an additional payment or if you have no gain you will then be able to claim back the 5% deducted at source. As the thread progresses the law has been updated to show a revised CGT rate of just 18% with only 3% deducted at source.

Summary

If you are investing in foreign lands you need to know the tax situation and what you may have to pay when you sell your property. While tax rates do vary across Europe, the EU is looking to move to a more consensus figure although there is some resistance and this may take some time to conclude.

This post not only acts as a useful thought provoking topic for those with investments in Spain (and other areas of the world) but it also shows how the Spanish tax laws have changed over the years. The post was originally added back in 2006 and has been updated by some of those who responded in the early days. Taxation can be a difficult subject for those who have not investigated this area of finance before and mistakes and misconceptions are common place.

Over the years the internet has taught people how to cut costs and adviser fees but there are some areas where it is very dangerous to cut corners. Taxation is one area where a simple error or miscalculation can literally cost you thousands of pounds and possibly put you in trouble with the authorities. There was a throw away remark about ‘doing a runner’ from Spain after selling the property in question but this would be a very bad idea.

It is vital to ensure that you are fully aware of the tax laws in the area in which you hold or a looking to buy property because there can be some nasty surprises unless you are prepared. Professional advice on the matter may cost you a fair amount of money, but at the end of the day you really have little choice if you want to do things correctly.

Read the full discussion thread on CGT in Spain.