Don’t let your dream home get swept away by Spanish Inheritance Tax
If you own a property in Spain, then you need to read this article…
Most owners are not aware that their beneficiaries and their estate may have to pay Inheritance Tax both in their country of domicile and in Spain. Spanish law dictates that the beneficiary of your estate must pay tax on the amount that they inherit.
The level of tax payable is not a fixed rate and is determined by the relationship to the deceased, their residency status and their existing wealth in Spain. In addition the estate of the deceased could be liable to pay Inheritance Tax in their country of domicile. For example if the deceased was UK domiciled and had worldwide assets in excess of £325,000 then the Estate could also be liable for Inheritance Tax at 40% payable in the UK.
What are the options to minimise the liability?
Unfortunately, it is common practice for lawyers and tax advisers who are not conversant with both jurisdictions to advise based on their own, often insufficient, knowledge. We have known of cases in the past where property owners in Spain have been advised to prepare a Spanish Will to avoid the tax. But as the tax is paid by the person inheriting the asset, the existence of a Will does nothing to minimise this. There are also times when the existence of a separate Will in Spain complicates matters and increases legal costs. It is key, then, that all British owners of Spanish property have a UK Will dealing with their worldwide assets, thereby making another Will else-where unnecessary.
Another misconception is that by simply taking out a mortgage on the property it will reduce the tax liability on death. It is true that the value of the asset will be reduced by the amount outstanding on the mortgage however, the Banks often insist that life policies are taken out which pay off the mortgage on death and the beneficiaries are back to inheriting the whole of the unencumbered property. Even if there is not a life policy then there is a substantial debt outstanding which will have to be paid before the property can be transferred.
Finally the most dangerous option that is put forward is to transfer the property to your children or beneficiaries now. The Spanish tax is payable not only on the inheritance of a property but also the gifting of a property so the tax would be paid sooner rather than later. Also once the property is in the names of your beneficiaries then you have to be able to trust that they will not dispose or charge your asset and leave you homeless. Issues of ins-olvency, divorce and your beneficiary pre-deceasing you can also add complications to what appeared to be a simple transaction.
Quite simply you invest your Spanish property into your own UK Company (which Wincham can supply) of which you will be the Director and share-holder and have total control. Contrary to popular belief there would be no 7-10% Property Transfer Tax payable on this transaction. Our method enables you to utilise Spanish legislation to conveniently own and maintain your home within a corporate structure in the most tax efficient way. Unlike an offshore Company which creates an additional 3% tax burden each year, the UK is not classed as offshore and in line with EU treaties cannot charge UK Companies the 3% tax.
All Clients who use our services to purchase or invest a property into a UK limited company are covered by Title Deed Insurance which affords cover for 20 years and a maximum of €360,000 com-pensation including Demo-lition Order, Fraud and Compulsory Purchase plus many more areas.
If you would be interested in receiving a free Spanish Inheritance tax Illustration and the opportunity to discuss how this method of ownership could benefit your personal circumstances please visit www.winchamiht.com or scan the QR code below. Alternatively contact one of our advisers on +44 (0)1260 299700 (UK) or 0034 965 830 991 (Spain).
We aim to provide a friendly and professional service for our Clients with a unique ability to cover their affairs in both jurisdictions with a comprehensive approach.