Spanish Property UK LTD/LLP Company

[croweuk]

I am being advised that a private, non rented house I own in Spain can be put into a UK LLP/LTD Company so as to avoid Spanish IHT in the future (UK IHT will still be applicable). However, reading around, there seems to be some opinion that this method of tax avoidance is about to be stopped with pending legislation. Can anyone tell me if this is right or wrong and point me in the right direction. Thanks in advance.

[maths]

There is a Spanish advisor who does post answers on this forum and hopefully he may comment upon your query and correct any of my misguided comments. I do not know the specific answer to your query but hope the following may help a little.

Historically, Spain levied an annual wealth tax and the use of "offshore" companies circumnavigated this problem; however, this tax has now I believe been abolished.

Capital gains tax in Spain is levied at 18% on non-Spanish resident companies which is also the rate payable by individuals.

So-called forced -heirship rules apply in Spain but my understanding is that a will drawn up under Spanish law by UK residents will not be disturbed even if the amounts inherited by the benficiaries are not in line with the forced heirship rules.

The only factor relevant to individual vesus company ownership would thus seem to be re inheritance tax. Unless Spanish IHT is levied at amounts greater than the UK then in principle an offsetting credit should be available where individual ownership is in point.

If Spanish IHT is avoided using a non-resident Spanish company then this option may be preferable from the IHT perspective (unless as you suggest this is to be stopped; I am unaware of this).

Using a UK company does incur extra costs and will, overall, produce a greater corporation tax charge than if individual ownership had beeen adopted.

Offshore companies historically have been used although I believe there my be problems vis a vis Spanish anti-tax haven legislation but am not sure exactly the impact of the provisions. The UK also has anti-avoidance provisions aimed at offshore companies.

[LJDG77]

I totally agree with the comments included by Maths (wealth tax, capital gains tax rate and IHT).

The solely reason of using an intermediate company, in order to purchase Spanish private-owned real estate is for the potential IHT.

I would like to point out a couple of ideas as regards anti-avoidance legislation, from the Spanish tax perspective.

According to the UK-Sp 1975 Double tax Convention (DTT), capital gains may be taxed in Spain, when transferring the immovable property itself, as opposed to the transfer of shares. In addition, there exist an Spanish internal anti-avoidance rule, whereby the transfer of shares mainly representing Spanish immovable assets may be taxed in Spain. Nevertheless, the application of this internal tax rule must be supported by a specific clause incorporated in the applicable DTT, enabling to do so. In the case at hand, the applicable UK-Sp DTT does not encompassed such a clause. Thus, the internal anti-avoidance rule does not enter into force.

On the other hand, there exist another anti-avoidance provision, but it is addressed to persons resident in tax haven jurisdictions or in countries that do not include exchange of information clause with Spain (i.e: Gibraltar).

Finally, note that the fact of using a UK company may entail indirect tax consequences.

Hope my comments respond from the Spanish side to your question.

Regards

Luis J.
luisjdura@duraasesores.com
Valencia/Spain
www.duraasesores.com

[JGOffshore]

Readers might be interested in a guide to owning property in Spain which I published a couple of years ago. It is a little out of date and I keep meaning to update the rates and remove the section on Wealth Tax but other more pressing matters (clients who I can bill) keep getting in the way.

However if anyone wants a copy they can download it here:

www.link4business.info/downloads/a-guide-to-owning-property-in-spain/

I do have a number of clients in Spain (property owning or otherwise) and have also managed a number of "offshore" (by that I mean non-Spanish) companies and trusts which owned property in Spain (and also Portugal, France and Italy). It is a bit of a game keeping up with the changes in local laws.

James

[Wincham]

Hello Members,

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.

I purchased in Spain and bought my property in a UK Limited Company and not my own name, I can leave the shares of the Company which I own instead of the property to my Heirs & Beneficiaries, so NO IHT in Spain is payable. I have now produced a UK Will, which instructs to leave my shares of the Company to members of my family. This means that when I pass 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 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. 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.

[LJDG77]

I would like to respectfully include a couple of tax comments related to the latest valuable opinion.

-The 3% withholding tax is applicable to any non-resident selling a property located in Spain,regardless of being either a company or an individual.

- As regards the issue of indirect taxation, the non-application on the transfer tax (7%) is commensurate with the application of the Spanish VAT (16%). Nevertheless, the payment of VAT tax at the purchase time may be offset against the future VAT payments of purchaser (if any). In addition, the VAT option must encompass a real business activity of the seller (as opposed to the mere holding of a property by a company) and the purchaser being a professional/company to whom/which the VAT regime becomes applicable. Finally note, that the Spanish Tax Administration is attacking all artificial structures aiming at not paying the transfer tax, with no real business means supporting it. Therefore, careful planning must be vcarried out, in order to ensure the eligibility of the VAT option.

Hope my comments are useful to this interesting tax discussion.

Luis J.
luisjdura@duraasesores.com
Spain
www.duraasesores.com

[Wincham]

Hello Members,

I would like to agree with the comments by Luis that the 3% Withholding tax is applicable to someone selling a property located in Spain, regardless of being either a company or an individual. But the Tax in Spain does not come in to play should the UK Company that owns the property in Spain be sold, as that transaction takes place in the UK and as no property is directly sold, there is no 3% Withholding Tax to pay in Spain. Any credible Lawyer in the UK can produce a Sale & Purchase agreement for the sale of the Company shares for about £1500. Please also bare in mind that the transaction and ownership that I have discussed are using the EU Laws and Taxation rules so Spain have to follow them as they are part of the EU, like the UK is. A UK Limited Company can own a property in Spain and solely be Taxed in the UK just the same as a Spanish (SL) Company can own a property in the UK and be Taxed solely back in Spain.

[maths]

A UK Limited Company can own a property in Spain and solely be Taxed in the UK just the same as a Spanish (SL) Company can own a property in the UK and be Taxed solely back in Spain.

The above is not strictly correct.

Both the UK and Spain have the respective right to levy their own domestic capital gains tax and income tax on companies resident in the other territory. In principle the UK/Spain DTA does not remove these rights.

[Wincham]

Hello,

I do not quite understand the point which is being made by maths so maybe you can expand on it, to answer the original question by croweuk, then Yes you can own your property in Spain via a UK Limited Company and it does completely remove Spanish Inheritance Tax in Spain, you also only require a UK Will to deal with the assets too. I am not aware of any other legal and tested method that has the same outcome for a property in Spain and this method uses EU Law which Spain and the UK are both part of.

[CECIL]

I'm a little confused by the information about an individual rolling a house owned in his own name in Spain into a UK limited company (or as I have also been told into any company in the EU or the world if a DTT exists with Spain).
What are the rules ? do you have to be the director at the date of transfer ? do you have to hold the shares at the date of transfer ? can you thereafter resign as director & shareholder ?
Any help would be appreciated.

Cecil, Marbella