Avoiding Spanish Inheritance Tax

[pbjenkins]

My partner and I are planning to move to Lanzarote and we wish to purchase a property between us worth about 400,000 Euros.

We are concerned about Spanish inheritance tax and capital gains tax. If we purchase the property jointly and make a Spanish will to leave each of our halves of the property to our respective children, with a life interest to the surviving partner, we would find ourselves in a situation where money would have to be found to pay inheritance tax to keep the property.



We therefore plan to form a company with 50/50 shareholding and we will loan the money to the company in order for it to purchase the house in Lanzarote. We will then make a will to leave the shares to our respective children. This will then avoid Spanish inheritance tax and also take advantage of taper relief on the transfer of shareholdings in the UK.

I understand that there is a annual 3% special levy for off-shore companies that own Spanish properties. Could anyone please tell me if this applies to Lanzarote and would it be better if we set up a Spanish company to own the property or would the same tax apply to the transfer of the shares. Or does anyone know a better method?

Phil

[Taxbar]

Lets start at the beinning.

Are you intending to go to Spain and leave the UK permanently?

In which case you will become Spanish Domiciled and taxable on your worldwide assets for Spanish IHT?

If you are not married then Spanish IHT can be quite punitive.

Using a simple Offshore company would not help.

I would recommend that you look @the articles in the UK & International section by Jonathan Miller and then consider getting good advice before you become Spanish resident or buy the property.

Daniel Feingold
STP
info@stratax.co.uk

[JasonButcher]

would this work -

Set up a UK trust.
Loan the trust money to buy the property.
trust buys property they live in the property.
trust gives them an IOU.
they put IOU into anouther trust where the children are the remainder man.
When parents die they get the IOU.

[Taxbar]

NO,

Sadly Spain does not recognise trusts and the Trustees would be charged Spanish IHT and for UK purposes this is caught by POAT

Daniel Feingold

[pbjenkins]

How about setting up a UK property finance company with the children as Directors and my partner and I holding the only voting shares. We would then introduce capital in the form of redeemable preference shares. The company would the loan us the money to purchase the property in Lanzarote on an interest only repayment basis. The loan could then be filed as a charge at the Land Registry. The preference shares could then be redeemed as required to recoup the repayments.

Or, alternatively, is it simpler to set up an SL Spanish company and use that to purchase the property, assuming that the company will be genuinely trading as well.