Inheritance tax issue for spanish property

[Peter D]

juan@fiscalaccounts.eu.

Regards Peter

[jvenegas16]

A property located in Spain will be taxed in Spain. Although you will save inheritance tax, the CGT with a witholding tax must be taken into account. The company is UK resident and it may not have a permanent establishment in Spain, therefore, the tax avoidance rules apply and the witholding tax will apply in order to meet the tax liability for CGT, as a declaration must be done for each transaction in order to pay the right amount of tax, as the witholding tax is 3% of the sales price, and the CGT is 18% of the gain.

Regards,

Juan Carlos

PS: Thank you Peter for your recommendations in different occasions in this forum. I really appreciate that.

[Peter D]

Your're welcome Juan. Regards Peter

[AvocadoK]

I have come across Winchams too. They suggested to a contact of mine that they should transfer their Spanish villa to a UK company, despite the fact that in their case it would have triggered a massive UK tax bill. When I challenged Winchams about their proposal, they said that they were not tax advisers, and merely provided a facility to put Spanish properties in UK companies...

Whilst your circumstances are quite different, I would suggest that you check the credentials of any professional adviser or company such as Wincham before using them, and ask yourself, what is my comeback if it all goes pearshaped?

[Wincham]

Dear Kelvin,

When you Inherit your Fathers property in Spain the maximum Tax allowance in Spain you will receive is only €15,956.98 and the remainder is Taxable to the Spanish Government. Once the Beneficiaries have paid their Taxes in Spain then there is also possible Taxes to pay on the Estate back in the UK too. My research shows because you are not Spanish the only legal way to remove Spanish Inheritance Tax is to move the ownership to a UK Limited Company.

If your Father owns in a UK Limited Company and not his own name then he can leave the shares of the Company to his Heirs & Beneficiaries, so NO IHT in Spain is payable. He only requires a UK Will, which instructs to leave his shares of the Company to the members of his family. This means that when he passes away 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.

If you use an Offshore Company like the Isle of Man, Gibraltar, etc, then those Companies receive an annual 3% Tax from the Spanish Government and the only people who benefit from IHT are those who are Domiciled in those Countries of the Company. Using UK Limited Companies that are registered at Companies House in the UK are exempt of IHT in Spain and under EU Law the Company can decide which jurisdiction it wishes to pay its Taxes, it can be that of the property, ie Spain or that of where the Company is registered, the UK.

If he wishes to sell the property, he 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 him do not have to pay the 7% Transfer Tax. This is because when he sells, he will not be selling a property, but will sell the UK Limited Company which owns the property, so no Taxes are payable in Spain. If you have a buyer of your property then you can save the 10% Spanish Taxes in a totally Legal way. If anyone else has suggestions of how to save IHT & Taxes in Spain then I would love to hear them but my research so far shows this is the only true way around it. I also found out that the only people who benefit from Spanish Companies (SL) when it comes to IHT are the Spanish so be careful of this advice.

[Wincham]

Hello Members,

Please find below a couple of additional answers that may be of use when researching the Transfer of a property in Spain to a UK Limited Company to remove IHT in Spain.

Property Transfer Tax : Gift Tax Applies to the transfer of the property within The Spanish Taxation system and provides for the investment of a Spanish property into a Society in Spain or a Limited Company elsewhere. The Family Business Gift Tax Ruling applies, well known amongst Abogado’s in the large cities, where it is well used, virtually unknown by the provincial Abogado’s on the Costa’s.

Capital Gains Tax : It is accepted practise in Spain that the property can be gifted at its original price, as declared in the Public Deed, plus the 7% tax paid at the time, plus an amount for indexation, as published on the Hacienda website, without incurring CGT. Therefore no Capital Gains Tax applies in Spain.

Once the property in Spain is gifted to the UK Company it is then accepted by the Land Registry & Tax office in Spain that the ownership has been moved. The Company can then elect to pay it Taxes Soley back in the UK, it does this by having a CIF number which is the equivalent of an NIE number but for a Company that operates in Spain. After the transaction is completed then the UK Company only requires a UK Accountant to deal with its annual accounts at Companies House and financial support. If the Company uses a Chartered Accountant then they are 100% regulated in the UK.

[Isis]

A question for Wincham

I'm looking into this scheme "ie transfer Spanish property to UK company to save Spanish IHT" and I'm just wondering what is the FAMILY BUSINESS GIFT TAX RULING to which you refer in your post?

Also what transfer tax would one pay (in Spain) on transferring property into a Uk limited company?