I have purchased on Finca Parc near Murcia and was advised by my Agent as how to combat Spanish Inheritance Tax. They informed me that if I buy the property in a UK Limited Company and not my own name, I could leave the shares of the Company, which I own instead of the property to my Heirs & Beneficiaries.

I followed their advice and have now also 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, (FANTASTIC)

Also if I wish to sell the property, I will not have to pay any 3% Witholding Tax which none Spanish Domiciled People have to pay when they sell the property on, 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 (GENIUS)

My Agent who is also a Corporate Property Ownership Consultant can assist anyone who wishes to purchase in a UK Limited Company, appose to his or her own names. If you have a buyer of your property then my Consultant can help save the 10% Spanish Taxes in a totally Legal way.

Yes you might save taxes up front but this arrangement generates higher annual taxes as the Spanish government is aware of this option and is closing the loophole. You will also generate UK taxes and the need to maintain a UK registered company.

Hello Rob,

This method is not there to only save taxes in advance, but means no Spanish Inheritance Tax has to be paid by my Heirs or Beneficiaries when I pass away. There is also no Spanish Transfer Taxes to pay if I sell the property to to the Buyers or me, as I will sell the Company and not the property. If the Buyer does not wish to buy the Company then I can simply sell the property to the Buyer out of the Company in the normal way.

Can you please let me know what annual taxes the Spanish Government charge a UK Limited Company for owning a property in Spain, I am not aware that they do charge any at all.

My UK Accountant has informed me that as this is a none trading UK Limited Company and has only been formed to own the property, I will not have to pay any taxes as there will be no trading or profits in the Company.

My Accountant will also only charge me ?150 to deal as my Company Secretary and Registered office in the UK per 12 months. And will only charge me ?300 each 12 months to file my accounts at Companies House. This hugely out ways any IHT or selling Taxes in the future.

My Property Consultant who helped me with this process has been purchasing and selling in Spain for 25 years, and as of yet has received no problems from either the UK or Spanish Governments. A loophole is something that is stamped on quite quickly but this tells me that there should not be a problem.

Maybe this process is worth you thinking about for your Buyers & Sellers as it today can legally save 10% in the deal, which should be fantastic in this difficult time, and also safeguards any none Spanish Domiciled people to the huge problem of Spanish Inheritance Tax.

I am glad that you have found an arrangement which suits your circumstances.

It appears the 3% annual tax only applies to tax havens - which the UK is not! For UK residents this arrangement might generate a UK tax - Benefits in Kind. 

To be honest I think the IHT problem is much over rated because the rules are so complicated and differ region to region which seems to result in people thinking they will have a huge liability.

However there is a trend (and without wishing to enter any kind of political debate) that regions governed by the Socialist party have the most generous allowances often resulting in no IHT payable - obviously terms and conditions apply (age, status, wealth etc)

As we always say here - it pays to research and take professional advice.

Dear Rob,

I have checked with my UK Accountant about the benefit in kind from owning Spanish property in a UK Limited Company. I was delighted to find that in the new budget this year there is no benefit in kind to pay to either the UK Company or the UK Government, this is because the Government has removed the requirement to confirm time spent at the property if it is owned by a UK Limited Company, therefore no benefit in kind is charged.

As far as Spanish IHT being over rated I have to disagree, it may not be a problem if you are Spanish or Domiciled in Spain (Which is not taking Residence) but for all other Owners, Heirs & Beneficiaries it is a nightmare. You are correct to confirm it depends on the region, age, status & wealth but if you are British, Spanish IHT will have to be paid.

Before I purchased in Spain, my Property Consultant prepared a Proposal that calculated the amount of Spanish IHT that would have to be paid in future, should I buy in my own name with my family. The figures they used were taken from the Spanish tax office and included the payable IHT taxes, and the IHT Tax allowance for my family and I on the property.

I unfortunately cannot supply my personnel information of my Spanish IHT proposal, but I am happy to display the Allowances that British people will have should they inherit a property, or part of a property in Spain.

Group 1 ? 15,956.98   / Descendants and adoptive children under 21.
Group 2 ? 15,956.98   /  Descendants and adoptive children over 21, Spouse, Parents and adoptive parents.
Group 3 ? 7,993.46   /  Brothers, sisters, nephews, nieces, uncles and aunts.
Group 4 ? 0.00       /  Relatives in fourth degree and friends (partners)

These calculations are based on all Beneficiaries NOT being domiciled in Spain.

Any British Domiciled inheritors of Spanish property will only have the above allowance deducted from their estate, and all Spanish Taxes will have to be paid before they can gain their Inheritance, which is the reverse from the UK.

Any Owners, Buyers or potential Inheritors can apply for a proposal to calculate their potential Spanish IHT at a website called http://www.winchamiht.com , I came along this website whilst I was doing my homework with my family on Spanish IHT.

Finally Rob I have to agree again you are correct to say it pays to research and take independent advice other then a normal Estate Agent.

I am delighted that the UK government has given something away!

I agree with your IHT table - but it still does not give the full picture - each inheritor has the allowance and the properties value is divided by the total inheritors who then pay tax at a starting rate of 7.65%

eg

Property value 100,000

Say 4 Group 1 inheritors = 25k each- Minus allowance in round figures = 16k net amount for tax = 9k

8 k @ 7.65% = 612 + 1k @ higher rate of 8.5% = 85 Around 697 euros total tax each.

Of course another way round it is to register the property into the childrens names at completion so they already own it upon the parents demise. And of course as you say should the inheritors be tax residents of Spain (an increasing occurrence as families relocate en masse) they are in a more beneficial situation.

This may negate your UK company ownership benefits but deals with the IHT (which might have been abolished in the meantime anyway)

We have been discussing your UK company idea with a client who is an accountant - he is in the process of reclaiming his Spanish IVA repayments via a UK VAT refund - we await the outcome with interest.

To answer your posts -
1.  On the 6th April 2008 the Chancellor abolished Benefit in Kind Tax for Directors of Property Owning Companies.

2.  With regard to the costs of running a UK company there are 2 things you will need to do
a.  Provide a Registered Office for the company in the UK. File the Annual Return for the company and pay a ?15 filing fee. This service can be provided by Company Formation Agents at an inclusive price of ?200
b.  You are required to file an annual set of Accounts for the company with Companies House and HRMC. This can be dealt with for a cost of ?100 for a non-trading company and ?300 for a trading company. The benefit of a trading company is that you can claim Tax Relief on the attributable expenses for the business. This can include Community Fees, Water, Electricity, Suma, repairs and possible flights and car hire for the Directors. There is a saving to be made to offset these costs as no Wealth Tax is payable by the Company and as the owner of the company has no assets in Spain there is no necessity for the owner to file Tax Returns in Spain. The company will file Tax Returns in Spain with zero liability. The filing of this return on Spain would be approximately 60?.

3.  With regard to Inheritance Tax, if you personally own property in Spain, all inheritors would be required to probate the Estate individually and pay the IHT based on their individual Inheritance Tax. This must be paid prior to any transfer of the asset. All assets are frozen; include personal and joint bank accounts, until probate has been completed. The assets cannot be mortgaged to pay these taxes. If the property were to be invested in a UK Limited company there would be no taxes or Probate in Spain. It is much easier to deal within a UK will with the shares of the company which are exempt from UK inheritance tax if the company is classed as a trading company. There are simple rules laid down by HMRC with which you would be required to comply. It should be noted that if the property is personally owned that there may be further IHT tax to pay in the UK depending on the size of the overall Estate. With ownership in a Corporate structure the shares can be transferred exempt of tax and the Directors Loan Accounts in the company could be gifted to the beneficiaries prior to death. This is quite simple to do and only required a letter to be produced stating that the Loan Accounts in the company should be gifted to the nominated beneficiaries and this can be lodged with the owners Will. The recipients do not even need to know that this has been done. The result is that as long as the owner lives 7 years then the Loan Account will be outside of the Estate for tax purposes.

4.  If you wish to sell the property, Corporate ownership gives you 2 options. Option one is that you sell the property from the company in the normal way, 3% Withholding Tax will be deducted from the sale proceeds.  The balance of the proceeds will now be held in the company and you are able to withdraw your Directors Loan Account, this will include all the loans that you have made to the company to finance the costs of running the property. Option 2 allows for you to sell the company, this is the most cost effective and simple process for all parties. It is achieved by the preparation of a Warranted Sale & Purchase Agreement. This can be prepared by a UK Lawyer, Accountant or Corporate Property Consultant. A small cost of 600? would be payable to a Spanish Lawyer to check the Title and for any encumbrances on the property. The vendor would be required to provide a professionally prepared and warranted Balance Sheet for the company. The payment by the purchase for the shares and the Loan Account can be made either in the UK or Spain and the transfer of ownership is quick and simple with nothing to do in Spain. From a Tax point of view the purchaser will not be required to pay the 7% Transfer Tax or the 1% Land Registry Fee and the legal costs will be limited to those stated previously. The vendor would not be required to pay the 3% Withholding Tax or the 18% CGT in Spain but would only be required to pay the 9% CGT levied by the UK HMRC on the sale of shares of a UK trading private Limited company up to ?1,000,000 gain.

5.  It is not understood by most Brits that apart from paying taxes in Spain that they must also declare to HMRC any profits that may be made on their World Wide assets and even though taxes may have been paid in Spain that further taxes may still need to be paid in the UK. As many Brits have suffered appalling advice from Spanish Estate Agents who have recommended that they pay for a property using what is called ?Black Money? this method is not only illegal but can also create a significant CGT liability back in the UK when the property is sold as there can be an inflated profit generated which will be taxable. Using a corporate method for acquisition, operation and sale effectively eliminates all Spanish Taxes and can provide the lowest taxation liabilities in the UK.

NO NO NO,

Sorry to say but all these contructions with UK companies are void and invalid due to the new anti avoidence measeres taken by the goverment in 2007.

Companies holding only real estate in Spain are now considered anti avoidence vehikels and hence treated as non existent.

Full tax will be charged!

OK - can you give the source of this information?

Thanks.

Bily
I dont know who has been telling you this information but I know you are wrong ,we have over 3 million euros of property of our own in Spain in UK Companies and over 300 Clients with properties registered in UK Companies ,A Company is as legal as any Person.

Hi Guys,

I will post the various sources later and yes its legal to buy property thru a UK company or any EU or offshore, but if the only asset is real estate in Spain then it falls under the new anti avoidence measures because the company is set up solely to avoid spanish taxes!

Using a Company to Buy Property in Spain

This article will explain the various methods of owning a property through a company. Choosing a strategy where you buy as an individual or through a Company will depend mainly on the value of the property and your personal circumstances.

We suggest that you make an appointment to speak with a fiscal advisor who will provide you with a study based on your personal requirements.

How companies were used in the past to avoid Spanish tax
Until recently buying property using a company used to be an effective way of avoiding tax. In the recent past it was acceptable practice to buy a property using a local Spanish company that was owned by a foreign company. The Spanish property and the foreign holding company could then be bought and sold while avoiding many of the taxes or costs of transfer, as the sale of the shares in the foreign company frequently fell outside the scope of Spanish tax.

Another common method was to own the property using a Spanish company and to sell the shares, which avoided capital gains and transfer taxes as there is no taxation on the transfer of shares under Spanish law. This was a complicated procedure and required careful structuring in order to achieve a successful outcome.

These are risky strategies nowadays, as tax authorities throughout the European Union have cracked down on tax avoidance. Spain has toughened up its legislation in line with EU regulation by introducing a special annual tax now on real estate owned by non resident companies (not used for business purposes) set at 3% of the valor catastral. Furthermore, indirect sales using the transfer of shares in a foreign holding company that directly control a Spanish company owning a Spanish property(s) are liable for tax and in the event of non payment the property bears the charge.

Off shore or non-residents companies are also currently taxed in the same manner as non resident individuals and face a capital gains tax rate of 35% on the profit of the sale of the property principally paid with the 5% with holding tax of the registered sales price. What types of company can own property in Spain? You can buy property using the following Spanish company structures: a Sociedad An?nima (S.A.), a Sociedad de Responsabilidad Limitada (S.L.), a real estate investment fund (Fondo de Inversi?n Inmobiliaria - F.I.I.), or an investment company (Sociedad de Inversi?n Inmobiliaria - S.I.I.). Or as a foreign investor you can buy property in Spain using an off-shore company, or a company that is registered in a country outside of Spain (however no longer a viable option for most investors due to the extra running costs from the new tax mentioned above).

Why use a Spanish Company to own Spanish property
Provided that you structure the company in the correct manner (see below), and that you can show that buying and owning property is part of the company statutes (the title deed for the company that declares what types of business the company has been set up to do), there are still some opportunities to avoid or minimize the taxes associated with buying and owning Spanish property. Here are some of the benefits:

Tax avoidance
Income and Wealth taxes
Income & Wealth taxes associated with owning property can be reduced if the value of the property(s) is high. The tax rates for these taxes increase progressively related to the value of the assets. It may be worth using a Spanish company if the values of the property(s) are over ? 1.000.000.

Property guide Spain

Your article is correct and it would not be prudent to use any offshore or Spanish Company, but your article does not refer to a UK limited Company. This is treated totally differently than any that are quoted in the article. A UK company is not taxed in Spain at all if it has opted to be taxed in the UK, under EU rules a UK company has the same rights as a Spanish one but is taxed in its own durasdiction. You will not find many downsides for this method as nothing can be more complicated or costly than owning a property in Spain in your own names.

Sorry for the misunderstanding.

Allthough, is it correct to say that in the UK the tax charge is 75% less then in Spain on these companies?
If so the new measures include UK companies!

If not so how much tax is paid on holding a spanish property of 1000000 Euro in a UK company?

Regards

CFC rules are regulated by 121 of CITA, whereby Spanish individuals and entities are subject to corporate income tax on certain positive passive income earned by non-resident entities, in which they own, individually or together with related persons, more than 50 percent of share capital, equity, profits or voting rights. Furthermore, the corporate income tax paid by the non-resident entity, must be less than 75 percent of the Spanish corporate income tax payable and is considered as passive income according to CITA. There are, therefore, three requirements in order to apply Spanish CFC rules: (i) control of the foreign company by one or more Spanish resident individuals or entities; (ii) the foreign company must be subject to a pref-erentiai tax regime; and (iii) the foreign company must obtain passive income.

In this link the rules are explained:

http://spaviv.costamedinvest.com/planificacionfiscal/20061219173003401.pdf

One must make a difference bewteen heirs resident in Spain and heirs resident elsewhere!