Spanish Property - Inheritance Tax

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ire

Guest
Hi all,

does anybody know anything about Spanish Inheritence Tax. A friend who's husband passed away recently has an apratment near Alicante. The apartment (which was joint-owned) is worth about 80,000 and she is now looking at a bill for more then 10,000 EUR - broke down as follows:

Death duties 4450.00
Tax to Town Hall 785.00
Solicitor Fees 2000.00
Translations and certificates 300.00
Notary's fees 1800.00
Registration fees 700.00
16%VAT 320.00

TOTAL: 10355.00

Does that look reasonable to anybody? Obviously in ireland there's be no liability.
 
Re: Spanish Property - Inheritence Tax

she/he should have got tax advice prior to purchase.
she/he should have willed this to as many next of kin as possible to reduce liability
think probably too late now?
did she/he have a separate spanish will which is vital?
 
Re: Spanish Property - Inheritence Tax

She needs specialist Spanish legal advice.
 

Big Rog is correct. You really need specialist help from an international tax advisor. The rates quoted on the bill may be correct, but depending on the exact circumstances of their relationship, the contents of the will(s), nationality, where the deceased and inheritor were/are resident, ordinarily resident, or domiciled, there can be all sorts of combinations of what tax law applies to what property, and whether the tax that is levied in one country can be offset against another tax levied in another country due to bilateral treaties on avoidance of double taxation. I don't think you'll find a reliable answer to your specific question on any forum or Internet page.

I believe after reading some sites that:

Spanish Inheritance and Gift Tax (IHGT) is paid by the recipient of property and is based on residence. Immovable Property is handled by the law of the country of origin (nationality) of the owner.

UK inheritance tax is based on being domiciled in the UK and is paid by the estate. Immovable Property is handled by the law covering the location of the property.

Irish inheritance tax = capital acquisitions tax (CAT) is paid by the recipient and is based on residence.

So depending on your exact circumstances you could end up paying none, one, two, or even all three and then claiming a reduction.......
 
Hello Everyone,

I purchased in Spain and was advised by my Agent as how to combat Spanish Inheritance Tax. They informed me that if I buy the property in a UK Limited Company and not my own name, I could leave the shares of the Company which I own instead of the property to my Heirs & Beneficiaries, so NO IHT in Spain would be payable.

I followed their advice and now only need a Will in the UK and not Spain, which instructs to leave the shares of my Company to members of my family. This means that when I die no Spanish Inheritance tax will have to be paid by them, as they will inherit a UK Limited Company that owns the property, and not the property its self. Therefore Spanish Inheritance Tax is irrelevant and completely removed. A Will in Spain does not remove or reduce Taxation in Spain it only allows the Lawyer in Spain to deal with the probate and calculate the dreadful Taxes.

If I wish to sell the property, I will not have to pay any 3% Withholding Tax which none Spanish Domiciled People have to pay when they sell the property, Secondly anyone who wishes to purchase the property from me do not have to pay the 7% Transfer Tax. This is because when I sell, I will not be selling a property, but will sell the UK Limited Company which owns the property, so no Taxes are payable in Spain.

My Agent who is also a Corporate Property Ownership Consultant can assist anyone who wishes to purchase or own in a UK Limited Company, appose to his or her own names. If you have a buyer of your property then my Consultant can help save the 10% Spanish Taxes in a totally Legal way as well.

If anyone else has suggestions of how to save IHT in Spain then I would love to hear them but my research so far shows this is the only true way around it. I am happy to pass on my Consultants details to anyone who would like to contact them and they are located in the UK & Spain. They also deal in probate cases so can help if their has just be a bereavement or if someone is on their deathbed.
 
Another way to minimise spain Inheritance tax to retain a mortgage as the tax is on the asset less liability transfered.

I.e property worth 80,000
Less Mortgage 80,000

Net asset 0

Tax 0

If you have no need for the mortgage you can get a mortgage and have an equivalent amount on deposit with the bank outside spain.
 
I suspect all of this well-meaning advice is a bit late for the OP.

Anyway, I would caution people once again to take full professional advice before embarking on any such tax saving scheme.

There are probably unexpected hooks.

For example, if you take a property into ownership via a limited company you will probably have to produce annual accounts which costs a fair amount, you will have to take any income from the property into your personal finances either as salary or a share dividend, you may not be able to get a mortgage, you may lose various other tax benefits, and you may get an unwelcome surprise for example from the VAT man when your company sells a property to a private individual, or a bill for advance corporation tax on expected rental income for the coming year...... or the tax man might even try to charge you for living in "your own holiday house" as a benefit in kind on your personal income tax if you do not pay your own company rent for the time you stay there.

it isn't as straight forward as some would seem to suggest, as there are pros and cons to every international tax decision. Some countries even ignore the details of the construction and merely look at the facts of the case, so if it looks like you own something you really do own it for tax purposes, whether or not there are shadow companies and smoke and mirrors in the way.

Having said that, a friend of mine uses something like the following construction:

He is a national of country X. He lived and worked in country Y and had a fair bit of cash in a holding company registered there. He moved to country Z. Country Z has restrictions on repatriating capital. So he bought his house personally in country Z, but using a mortgage provided by his own holding company located in country Y (with a proper contract written with approx commercial rates and terms of course).

Advantage is that when he sells the house in country Z, he still has a large debt to his holding company in country Y which can be offset against the current value on his house in country Z, so he has less restrictions on any capital he can repatriate. Disadvantage is that the mortgage interest that he pays from country Z to his holding company in country Y counts as company income, and thus is liable for corporation tax in country Y if the company makes a profit. However, due to other tax breaks he can still take a salary from his holding company in country Y at a preferential rate of income tax (due to the particular international tax agreements between country Y & Z) negating the profit in his company and making the whole construction more attractive.

It isn't for everyone by any means, but it is 100% legal and above board (checked with accountants and the tax authorities in country Y & Z) and it is tailored to his particular circumstances and wishes, which is really key to the whole.
 
Fully agree

Allso when a company holds a property and when you are going to sell the property you intend to transfer the company in order to save the new buyer the stamp duty. This in theory is great but, not many people want to own a company as there may be actions the company took in the past that come back to haunt the new owner.

As such it is likely the new owner will want to pay less than if they were buying just the property. This may erode the stamp duty benefit.
 
Hello Markowitxman,

Firstly I would not recommend anyone to re-finance or mortgage their property before they die because you will be leaving a big debt to your Beneficiaries, and I am sure none of us want to do that as they may not be able to make the payments and it will be terrible if it got repossessed.

Should a property be owned via a UK Limited Company then there are 2 ways to sell the property. The first is selling the property from the Company to any individual which means the 7% Transfer Tax is paid in Spain by the buyer as normal. The Company will then pay the 3% Withholding Tax or 18% Capital Gains Tax in Spain as a normal sale too. This means there is no complication to the Buyer so no extra discount is needed and if they do not want the Company history then they don't buy the UK Company either. The second way is to sell the UK Company its self which will save the Buyer the 7% and reduce capital gains Tax from 18% in Spain to only 10% in the UK for the first million pounds profit. There is no VAT to be paid in the UK on this Sale.

The UK Company does produce annual accounts in the UK by using a UK Accountant but these fees are instead of any annual personall Tax Returns that all Owners of Spanish property have to submit each year even if they do not visit Spain themselves. The EU Law states that a Company from an EU Country can own and purchase a property from another EU Country and decide to be Taxed in only one jurisdiction, this can be the jurisdiction of the property or for example the UK where the Company is registered. Benefit in kind use to be in place for the UK Company Owners but this has now been removed in the UK so no problem with that. When the UK accounts are produced any income from the property can be offset against any expenses, e.g. mortgage interest, airfares, car hire, e.t.c. In Spain a none Spanish Domiciled property owner/owners are not allowed to offset these so another advantage here.

There are not may Professional people out there who specialise in Corporate Property Ownership but if you have an understanding of the Spanish, UK & EU Taxation Laws like my Consultant, who is located in Spain and the UK, then you should be OK.

Let me know if you would like their details.
 
W.C.D. said:
Hello Markowitxman,
Benefit in kind use to be in place for the UK Company Owners but this has now been removed in the UK so no problem with that.
Click to expand...
Interesting.

I read it differently. I don't by any means pretend to be an expert on the matter. But I did find these two pages:

[broken link removed]
http://www.hmrc.gov.uk/manuals/eimanual/eim11366.htm

I read these pages to mean that if you are a director of the company owning the property then you are not generally exempt from tax as a benefit in kind.

That made sense to me (although tax law doesn't always make sense)

Otherwise why doesn't every single one-man-band (IT) consultant in the UK buy their own main and secondary residences through their company and have an office in the bedroom? No rent or mortgage to pay out of personal income. And no corporation tax on the costs of the mortgage for the accommodation either, as the costs of servicing the loan and write off of the property as an asset can be offset against any company income to keep the company's profit near zero for the full term of the mortgage.

Live for free and pay no tax: sounds way too good to be true.

Do you have a reference to confirm the opposite view?

[edit]

Found the quotes myself:

Apparently in 2007 some people did not even realize they were accruing a benefit in kind, which shows how tricky these constructions can be.
http://www.telegraph.co.uk/finance/...ower-tax-rates-could-leave-you-worse-off.html

This was changed in the UK in 2008.
[broken link removed]


Conditions are:

  1. The property is owned by a company owned by individuals. If the shares in the company are owned by a family trust the exemption will not apply.
  2. The property is the company’s only or main asset.
  3. The company’s only activities are those that are incidental to its ownership of the property, and
  4. The property is not funded directly or indirectly by a connected company
That would stop the IT Consultant scenario I sketched above. It has to be a special purpose property ownership company. You couldn't fund a house purchase with consultancy work within the same company. Won't work for me either as it is exclusively for UK tax payers. Where I live the tax authorities will certainly see this as a vacation home no matter what the construction.
 
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Re buying through a company, I vaguely recall the Portuguese government were at one point going to come down heavily against this practice, which would put a lot of home owners in fear of back tax & penalties. It might be worth finding out what they did in Portugal before going down that road.
 
Mumha: You reflect exactly the point I was trying to make earlier. You simply can't rely on a general internet forum for international tax advice for something as important as a property purchase. What may work brilliantly for a UK born and resident poster with properties in the UK & Spain may become an absolute tax disaster for an Irish born poster who lives and works temporarily in the UK and who owns identical properties next door in both countries bought at exactly the same time. There are just too many variables that can dramatically change the applicable law e.g. domicile

see e.g. [broken link removed]
 
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