Retired couple who sold their Spanish villa nine months before qualifying for full CGT exemption in Germany

The situation

Our clients were a German couple, both retired, who had owned a villa near Marbella since October 2013. In June 2022, following nine years and eight months of ownership, they completed a sale of the property at a gain of approximately €380,000. They came to us after the sale had completed, referred by their German accountant who wanted a second opinion on how the gain should be reported across both jurisdictions.

The challenge

The Spanish tax position was straightforward: EU residents pay Spanish CGT at 19% on the net gain. The German position was more significant. Germany exempts capital gains on private real property held for ten years or more — the Spekulationsfrist. The couple's holding period was nine years and eight months. They were four months short of full exemption. The German CGT on their share of the gain, at their applicable marginal rate including the solidarity surcharge, was substantial.

Our approach

By the time we were engaged, the sale had completed and the tax consequence was fixed. We worked with the registered advisers to ensure the German return was filed correctly, the Spanish credit was applied in the appropriate amount, and the documentation supporting both positions was in order. We also modelled, for the clients' benefit, what the position would have looked like had the sale completed after October 2023. The German CGT would have been zero. The combined saving would have been material.

The outcome

Both the Spanish and German returns were filed correctly and the combined position settled. Our clients retain an interest in a further German property and are now mindful of the ten-year threshold in the context of any future disposal decisions.