Will I have to pay capital gains tax?

I would like to gift our holiday home in Spain to my nephew. If I do this, will I have to pay capital gains tax?

Question: I have a house in Spain that I have used for holidays for quite a few years, and I would now like to gift it to my nephew. If I do this, will I have to pay capital gains tax? This could make it a bit difficult for me.

Answer: There is quite a lot for you to consider here before you make this generous gift to your nephew, if you don’t want to get yourself into trouble. UK capital gains tax at up to 28 per cent could very well be payable on the gift, because a gift counts as a disposal for purposes of the tax. 

The gain is calculated by comparing the sterling equivalent of the purchase price using the exchange rate at the time of purchase with the sterling equivalent of  the sale price at the date of sale.

Of course, there may well be no gain, given the state  of the Spanish property market and the exchange rates recently.

Do note, however, that capital gains tax might not be payable if you happen to be non-UK domiciled and are claiming the remittance basis of taxation.

Another consideration is that, in addition to British capital gains tax, there may be UK inheritance tax consequences for your estate, should you fail to survive the gift by at least seven years.

Also, do not forget the Spanish taxes. Spain has capital gains tax at 21 per cent, with a credit against the UK liability for any Spanish duty. Spain also has gift taxes, which can be high — especially for gifts to non-lineal descendants, which is how your nephew is classified.

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If you have a question for Fiona McNulty, please email legalsolutions@standard.co.uk or write to Legal Solutions, Homes & Property, London Evening Standard, 2 Derry Street, W8 5EE. We regret that questions cannot be answered individually but we will try to feature them here. Fiona is legal director in the real estate group of Foot Anstey LLP in Exeter (fionamcnulty@footanstey.com)
These answers can only be a very brief commentary on the issues raised and should not be relied on as legal advice. No liability is accepted for such reliance. If you have similar issues, you should obtain advice from a solicitor.

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