Spanish Taxes, Property Inheritance Tax Time Bomb

If you have been looking for information on Spanish Inheritance Taxes, there are three topics covered on this page. Just click on the link of the topic you require.

Spanish Taxes

Probate in Spain.

Wincham Consultants

Spanish Taxes

Non-Domiciled property owners in Spain are sitting on a ticking IHT time bomb. Most owners do not understand that their Heirs and their Estate will pay IHT in two jurisdictions, Spain and their Country of Domicile. The reason for this is that in Spain the individual inheritor is taxed whereas in other countries, like the UK, it is the estate that is taxed. This could mean that on the death of an owner the surviving partner, or the owner’s Beneficiaries, could have a Tax Bill that virtually wipes out the entire Spanish Inheritance. Added to this is the cost of Probate in both countries for the Inheritors. Most Lawyers in Spain recommend to Owners that having a Spanish Will deals with the problem; this is incorrect as a Will only deals with the issue when there is a death and does not remove Taxation in Spain.

Other advice given is that double Taxation treaties between Spain and the UK will help with the Tax being reduced, this is true in identical Taxes but these are not, as in the UK it is the Estate which is Taxed and in Spain it is the Beneficiaries who are Taxed. It therefore should not be assumed that one Tax can be offset against the other as they are both totally different taxes on totally different entities. Many Owners are advised to re-finance the property as IHT is not charged on the property amount if there is an outstanding mortgage and loan, but this may end up leaving the Beneficiaries with a huge debt they cannot pay off and many lenders will only finance the ownership if suitable life insurance is taken out, so the property is paid for on death and the Tax still becomes due. Owning a property with your children is a favourite, this is not a good idea either as their share of the property may end being at risk through financial or marital issues and if they die before the parents then the parents have to pay Taxes to get the property back.

Our solution to the IHT/ISD problem in Spain is for the owner/s to invest the property into a UK Private Limited Company which they would own as Shareholder/s of the Company. Contrary to popular misconception there would be no 7% Transfer tax payable on this specific transaction unlike other property transactions in Spain. There may also be no Capital Gains tax implication in Spain when you invest a property into a UK Limited Company, as the Hacienda has a method of calculating an investment value based on the original purchase price as shown in the Public deed and Spanish Tax Residents who are over 65 when they invest their property into a UK Company do not have any CGT liability in most Regions anyway.

This method may eradicate all Taxes in Spain in the future, in respect of the property, as under EU Treaties a UK Company is only Taxed in one jurisdiction, the UK, and no Taxes are payable onwardly in Spain. A UK Company is not an Offshore Company as in Gibraltar or the Isle of Man as they are charged an annual Tax by Spain of 3% for not being part of the European Union.

Shares in the UK Company can be dealt within a UK Will and depending on the structure of the Company; the Shares may be exempt from Inheritance Tax in the UK as well. A further advantage of the Company Structure is that attributable expenses such as Mortgage Interest, Council Tax Bills, Water, Electricity, Repairs and Maintenance can all be Tax Deductible by the Company; this may also include car hire and flights for the Directors. Unfortunately if you own a property in Spain in your own name then you may not be allowed to offset income against expenditure by the Spanish Tax Authorities. The benefit in kind Tax for Directors of a UK Company which own property abroad has now also been removed.

This is a simple solution costing less than most probate and legal fees in Spain when there is a death of an Owner of the property and requires no NIE numbers for the Beneficiaries to inherit. Our unique service is available to all Nationalities including both Residents and Non Residents of Spain and can be completed within 2 to 4 weeks if required.

We have been developing our systems and process for many years as we strive to be the market leader in this type of transaction so this means Clients are dealing with a Company who has been researching the transaction for a long period of time and has an extensive customer base that has used this method and are extremely happy with the service they have received from us. Clients can also be assured when talking to Wincham they are dealing with professionals who are operating in this type of business on a daily basis, unlike other professionals who are not, but still advise about the method and due to their lack of understanding and knowledge confuse or put off interested owners from exploring the concept. We find Clients are failed time and time again by both Spanish and UK professionals as they are unable to advise on more than one jurisdiction. The Clients website where they can register for their free illustration showing the IHT/ISD liability in Spain is www.winchamiht.com

Wincham is an International organisation that has been established since 1994 helping Clients purchase and own property in Spain using a corporate structure to combat Taxation in Spain. In recent years we have seen a significant increase in the number of people who are concerned about ISD in Spain and are now looking to address the situation to protect their Beneficiaries. Wincham has offices in both the UK and Spain and within our organisation we have qualified professionals in both jurisdictions including Gestors, Economistas, Tax Consultants, Estate Planners, Lawyers, Will Writers, Chartered Accountants, Members of the Institute of Credit Management and a Companies House Formation Agent.

This information has been provided by Mark Roach, Company Director and Spanish Tax Consultant.

For further information please call the UK on : +44 (0)1260 299 700 or Mallorca on 0034 965 830 991 or visit our website at www.winchamiht.com




Do Not Wait Four Years Before You Probate in Spain.

As Spanish Tax Consultants we provide an alternative method of ownership of your Spanish property to help protect against Spanish Inheritance Tax. Whilst discussing our methods with interested clients we hear of many crazy suggestions from advisors in Spain who purport to have solutions for some of the problems faced by non Spanish owners of property in Spain. One of the most common suggestions we hear about is that clients are advised to do nothing following a death for 4 years and hope that the Taxman in Spain does not find out there has been a death of an owner of the property. The reason for this suggestion is that the Statute of Limitations in Spain is 4 years and this means that by ignoring the Tax for 4 years it may be possible to escape paying the Tax 4 years and six months following the death, as you are given a further 6 months to deal with the Probate. Whilst this is possible and we have seen Probate cases where the Taxes have been evaded in Spain by employing this method, there are many situations that could arise should you decide to take the risk.

The beneficiary has a legal requirement to probate in Spain and pay all the Inheritance Tax in Spain within 6 months, otherwise fines and interest will be charged on top of the Tax which is due already. The Spanish Government can also embargo the property which means large fines would have to be paid before Probate could be completed. I am currently working on a case where a client has just paid in excess of €19,000 in fines and interest in addition to the cost of Probate and Taxes in Spain just to move the property from her deceased mothers name to hers. Our research shows that interest can be charged by the Spanish tax office at anything up to 20% for assets which are not probated within the allowed period.

Every year the registered owner of the property has to submit annual Tax Declarations to the Spanish Government, this is very difficult for a deceased person to do and we are aware that the Tax office is looking closely at properties and levying hefty fines where annual tax submissions have not been submitted. The utility and Council Tax bills will have to remain in the deceased's name and it is illegal to continue to use a deceased person’s bank account. The intended beneficiaries cannot sell the property whilst it is in the deceased's name nor raise finance on it to pay any Taxes or Probate costs. What would happen should one of the beneficiaries pass away before the 4 years has expired? This event would result in one probate having to be dealt with before the second deceased’s beneficiaries could inherit.

On death the Spanish bank account of the deceased may be frozen until the Taxes are paid so how would the beneficiaries get legal access to this money? Even if the money was withdrawn illegally after death, the Tax Authorities may request a copy of the bank statements in Spain at the date of death to see what amount was in there. If there were funds present on death then this would be Taxable also in Spain.

Whilst the Statue of Limitations on Taxation in Spain is 4 years this would not be relevant if the Spanish Government could subsequently prove a fraudulent non disclosure had taken place. There is no such Statute of Limitations for fraud, and therefore, there is a very real risk the Spanish Authorities would claim that there was deliberate criminal withholding of information and thereby enforce the Tax retrospectively. Misuse the Statute of Limitations in this manner is a criminal act and highly dangerous method of Tax evasion – not to be advised!

Our solution to the Spanish Inheritance Tax problem in Spain is for the owner/s to invest the property into a UK Private Limited Company which they would own as Shareholder/s. This transaction does not attract the 7% Tax payable when a property moves from one owner to another. There may be no Capital Gains tax implication in Spain when you invest a property into a UK Limited Company as the Hacienda has a method of calculating an investment value based on the original purchase price as shown in the Public deed. Spanish Tax Residents who are over 65 when they invest their main residence into a UK Company do not have any CGT liability in most Regions either.

This method may eradicate all Property Taxes (excluding I.B.I.) in Spain in the future, as under EU Treaties a UK Company is only Taxed in one jurisdiction if it is a non resident Company of Spain and does not trade in Spain. A UK Company is not an Offshore Company unlike a Gibraltar or the Isle of Man Company. Offshore companies are charged an annual Tax by Spain of 3% as they are not within the European Union and this charge is not levied on companies within the EU. Shares in the UK Company can be dealt within a UK Will and depending on the structure of the Company; the Shares may also be exempt from Inheritance Tax in the UK. This results in a very simple and cost effective way of dealing with the transfer of the property, within the UK Company, to the intended beneficiaries and does not involve any of the Spanish authorities in the transaction.

Wincham is an International organisation that has been established since 1994 helping clients purchase and own property in Spain using a corporate structure to combat Taxation in Spain. In recent years we have seen a significant increase in the number of people who are concerned about IHT/ISD in Spain and are now looking to address the situation to protect their beneficiaries. We have offices in both the UK and Spain and with qualified professionals in both jurisdictions including Gestors, Economistas, Tax Consultants, Lawyers, Estate Planners, Will Writers, Chartered Accountants, Members of the Institute of Credit Management and a Companies House Formation Agent. Wincham is able to offer an efficient and cost effective solution to clients who wish to ensure that their family will be able to enjoy the benefit of a Spanish property in the future.

This information has been provided by Mark Roach, Company Director and Spanish Tax Consultant.

For further information please call the UK on : +44 (0)1260 299 700 or Mallorca on 0034 965 830 991 or visit our website at www.winchamiht.com












A Brief Review of Wincham Consultants and our Inheritance Tax Services

Since Wincham has been writing about Spanish Inheritance Tax we have received many enquiries about our company and solution to avoid the Taxes in Spain so I have supplied a number of the most popular questions posed by our clients.

Who has to pay Spanish Inheritance Tax?
Most owners do not understand that their Heirs and their Estate may pay IHT in two jurisdictions, Spain and their Country of Domicile. The reason for this is that in Spain the individual inheritor is taxed whereas in other countries, like the UK, it is the estate that is taxed. This could mean that on the death of an owner the surviving partner, or the owner’s Beneficiaries, could have a Tax Bill that virtually wipes out the entire Spanish Inheritance. Added to this is the cost of Probate in both countries for the Inheritors.

Who may own a UK Limited Company?
The services we offer are available to both Residents & non Residents of Spain as any Nationality may own a UK Company. Whether you currently own a property in Spain, are about to purchase in Spain, or own the property in an Offshore or SL Company, we have a solution and method to help to transfer your property into a UK Limited Company.

What is the Capital Gains & Transfer Tax when investing a property into a UK Company?
There is no CGT implication in Spain when you invest a property in Spain into a UK Limited Company, as the Hacienda has a method of calculating an investment value based on the original purchase price as shown in the Public deed, plus the 7% paid at purchase, plus the Notary fees, plus indexation for the years the property has been owned. This value is the new investment value into the Company with no CGT in Spain. There is a further benefit to clients who purchased their property before 1997 as before this date there was no CGT in Spain and this allowance will be calculated into the new investment value. The downside is that in 2007 the rules changed, for each day that the property is owned after 1st January 2007 one day is taken off the Tax free allowance, therefore shortening the Tax free time available for CGT. It is therefore beneficial to utilise this Tax free time now as in the future it will be eroded to zero.

CGT will not be applicable in Spain if the owner is a Resident of Spain for Fiscal reasons and over 65 and the property is their main residence. This means that the property can be invested at a significantly higher value with no CGT. This will save future CGT of 19% when the property is ultimately sold.

When investing a Spanish property into a UK Company there is no 7% Transfer Tax on the transaction either.

Are there any onward costs in running a UK Limited Company?
It is very cost effective to own a UK Company as £500 to £700 a year will cover the maintenance and running costs of the Company including the filing of the accounts in the UK. By owning a property in Spain using a UK Company structure the individual owners are not required to submit a Tax Declaration (Return) in Spain for the ownership, instead the UK Company submits a single Declaration once a year which is submitted and filed at zero as a UK Company does not pay this Tax in Spain. A UK Company does not pay the annual 3% Tax in Spain as a UK Company is classed as a non resident Company of Spain not Offshore like Gibraltar or the Isle of Man, for example. Offshore Companies attract a 3% annual Taxation from Spain as these Countries are not part of the European Union.

Can I transfer a property into a UK Company if it has a mortgage?
In Spain a mortgage has 2 separate component parts, a loan made to the borrowers and a charge placed by the lender upon the Public Deed. A Mortgage (Hipoteca) is recorded against the property on a public deed. If the property is transferred to a UK Company then the mortgage stays attached to the property. Once the property is in the ownership of your Company then the loan repayments can be made from a Company bank account. The bank account will be funded by the owners of the Company or from income that is generated from the company or property. The interest and other expenses can then be offset against any income to the company which may not be done if the property is in the owner’s private name.

Does Wincham have the infrastructure in place to deal with this transaction?
Wincham has been established since 1994 and has offices located in the UK and Spain and our Organisation consists of Gestores, Economistas, Lawyers, Estate Planners, Will Writers, Tax Consultants, Chartered Accountants, Members of the Institute of Credit Management and a Companies House Formation Agent who are all part of our team and work on the process and supply support to our clients. You will notice that we are part of the Association of International Property Professionals and therefore must have Professional Indemnity insurance for services both in the UK and Europe which covers our Group of Companies. We also have an MRL licence (Money Laundering Regulation Licence) approved by HMRC in the UK so clients can trust the services and solutions that we supply.

What Professionals do I require in Spain after completion?
There is no requirement for Wills in Spain, probate in Spain, Lawyers in Spain or any personal annual Tax Declarations on the property in Spain. You only require someone in Spain to act as the Companies Fiscal representative to submit a ZERO Tax declaration each year, this service we provide to our clients.

Can you supply any onward benefits?
Wincham has invested over £100,000 developing a bespoke online Case Management System for the benefit of all registered clients. This ensures all clients can track the progress of a case by logging into their personal, secure section of our website and viewing copies of all personal, company, bank and Legal documentation. Clients can also keep track of any Taxes or Fees due and view copies of receipted documentation once paid. Additionally we are now able to offer a Cash Book facility which records all expenses in respect of the ownership of the property. By ensuring that this simple facility is kept up to date clients can ensure that the cost of the preparation of the annual accounts for the company is kept to a minimum. An additional benefit of our system is that, should the company be inherited or sold in the future, there is a full record of all transactions for the company and property which are available to the new owners. Should any client not be able to use the internet then our offices are always open to meet with them in person.

This information has been provided by Mark Roach, Company Director and Spanish Tax Consultant.

For further information please call the UK on : +44 (0)1260 299 700 or Mallorca on 0034 965 830 991 or visit our website at www.winchamiht.com