Rachael

I thought that I had better start this thread to go alongside the one about market research.

I found out all the facts surrounding Spanish Inheritance Tax (ISD) in dribs and drabs. Once the whole picture was clear I was very worried and very cross.

The worst aspects of this tax as far as I am concerned are firstly that there is no exemption between husband and wife (unless you are both legitimate fiscal residents here, have been for specific lengths of time and intend to remain so in the medium term) and secondly that the tax is levied on the beneficiary of the Will, not the estate of the deceased. This means that if a Spanish property is owned jointly, when one spouse dies the other has a potentially very significant tax bill to pay just to keep on owning the house that they bought together with their husband or wife!! Because any assets owned on death (including jointly owned property or joint bank accounts) are frozen until probate fees and tax due have been paid, the house can't be sold by the beneficiary to meet the debt.

Another scary fact is that there is no dual taxation treaty between Spain and the UK on inheritance tax. There can't be because the tax is levied on two entirely separate entities. If you have enough value in your estate to be subject to UK inheritance tax (£650k for a couple) then you could pay tax on your Spanish property twice!

People have thought that they were leaving their children a valuable and useful legacy, and instead they have left them a massive debt and a nightmare of Spanish officialdom. And we all know what that can be like !

The whole concept shocked me into doing some research on the internet. I found a company based in both the UK and Spain that has come up with a legal and straightforward solution to the problem. You can look at everything in detail and request a free personal illustration of your situation by going to winchamiht.com

I was so impressed by the simplicity of the solution (and how it also meant that I would pay less tax on my Spanish villa rentals) that I flew to England and did a training course with them. I am now a consultant for Wincham Consultants here in Tenerife. I have followed their advice personally and now have peace of mind when it comes to Spanish Inheritance Tax. If I had found out all the information I know now earlier then I would also be considerably better off as it is possible to use the system for shielding your property from ISD to pay significantly less tax when you purchase it.

Please feel free to ask about any aspect of the above or what you read on the website. I am also happy to take PMs about personal situations.

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"You can complain because roses have thorns or you can rejoice because thorns have roses."

Briz

Interesting.

What are the costs involved in transferring ownership to a UK Company if the property is jointly owned by a none domicile married couple.

Also are there any yearly taxes to be paid by the newly formed Company

Rachael

The costs are a £5,000 one off fee to Wincham for the provision of the service (it may be slightly more if the property is worth more than 500.000€), any Plus Valia that may be outstanding, a 1% Regional Transfer tax based on the transfer value of the property, Land Registry Fees and any Power of Attorney or additional translation costs that may be required.

The Plus Valia is hard to quote for as it depends on how long the property has been owned and how much land it has. As a very rough guide, if you have owned a property worth 300k for less than 5 years then you are probably looking at a few hundred Euros. If it has been owned for more than 10 years then the cost is more likely to run into 4 figures rather than 3.

The transfer value of the property is it's original escritura value, plus taxes paid at the time of purchase, plus any legitimate capital improvement costs, plus an indexation from the Hacienda so that Capital Gains Tax will not be due on the transfer.

Land Registry Fees will be around the 400€ mark and a typical Power of Attorney costs between 80 and 150€.

This may seem like a lot of money for peace of mind, but take the following example:

A non resident married couple own a property worth 300.000€. On the death of one spouse the other will have to pay at least 23.400€ to the Hacienda. When the surviving spouse dies and the property is left to their 2 non resident grown-up children, these children will each have to find another 23.400€ in Spanish Inheritance Tax. This example assumes that the couple have no assets other than their Spanish property.

What you get for your £5,000 fee is listed on the website. If I put it all here the post would be enormous!!!

The newly formed company will have no ongoing taxes to pay in Spain other than the IBI for the property. If the company has no income (in other words if it is not rented out) then no tax will be payable in the UK either. If the property is let then UK Corporation Tax of 21% will be charged on the net rental income - you can offset all or your mortgage interest, bills, community fees, insurance etc. against tax. Even reasonable flights to and from the UK and car hire in Spain for the directors of the company are allowable. If the property is not in a UK Company or being run as a Spanish business then it is liable for Spanish Income Tax of 24% on the gross rental income less a small percentage of any applicable mortgage interest. No other attributable expenses are tax deductible. This difference could amount to a considerable annual tax saving.

Additionally, if you don't rent out your property then you can 'roll up' your property expenses and offset them against any capital gains on the sale of the company, or gift them potentially tax free to your beneficiaries.

Ongoing fees for the provision of a registered office in the UK, Company Secretarial duties, the preparation and filing of annual accounts and the filing of a zero tax return in Spain will cost about £850 per year.

If you are at all interested in your own situation Briz, then request the personal illustration on the website and see how much tax your beneficiaries would owe. It costs nothing to find out!!

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"You can complain because roses have thorns or you can rejoice because thorns have roses."

Janet

Just something that needs to be said and Rachel hasn't mentioned it yet ... she is not just someone who's been on "a training course". She is actually a UK qualified chartered accountant.

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www.janetanscombe.com

Rachael

Just to clarify Janet - I am a former member of the Institute of Chartered Accountants in England and Wales. I haven't practiced there for some time so let my membership lapse. That means that I can no longer call myself a Chartered Accountant. I was once though .......

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"You can complain because roses have thorns or you can rejoice because thorns have roses."

First Lady Supertonic

What a brilliant informative thread Rachael, thanks for sharing your knowledge with us all.

It will be of great help to many.

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'You cannot direct the wind, but you can adjust your sails'

pelinor

Sorry, but I found the advert to frightning! bit of a hard sell.
What happens if you start the company and next year the Spanish Government close, what seems to be a loop hole?

Or maybe I'm not reading it correctly

But hard sell and scare mongering aside. It is a wake up call thank you Rachael

Rachael

Sorry - didn't think I was 'hard selling', just giving facts! They sure scared the s*** out of me when I found them out, which was why I have set up a company and transferred my properties to it.

The key to the transfer of property from personal ownership to company ownership without significant transfer tax is a Spanish Law that was brought in to aid the compulsory purchase of property. If that law was changed then the Spanish would have problems as a result.

EU Directive says that you can elect to have a company set up in a Member State taxed in whichever EU jurisdiction you choose because dual taxation treaties apply. The company owns the property because of the transfer and it is out of Spanish tax, period. I think it extremely unlikely that EU Directives regarding company tax in Europe will change - there is too much at stake.

There isn't really a loophole, just clever use of existing laws.

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"You can complain because roses have thorns or you can rejoice because thorns have roses."

First Lady Supertonic

I suppose this is where signy and I are lucky. We sold everything up and gave our kids the money preempting any of the pitfalls of inheritance laws.

We rent our property and always will.

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'You cannot direct the wind, but you can adjust your sails'

goldenmaniac

I agree its a solution, one that has been around for a while - allthough not in this neat package that you are offering I agree.

In the interests of balance I would also point out that another way the inheritance tax can be avoided is by something called Uso Fructo.

Ie the the children own the deeds to the property in Spain but can not sell during the lifetime of the parents (unless they are in agreement of course)

What are your thoughts on the pros and cons of the two ways Rachel?

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