I’ve just seen this thread and although somewhat out of date I thought I’d throw a bit more fat into the fire.
The use of a UK Company to buy property in Spain does indeed currently work but won’t for much longer. There are changes in legislation going through in Spain at the moment to plug this loophole and HMRC are on to it anyway.
If you are a shareholder in a UK company and indeed you would be if you used a UK Company to buy the Spanish property then you are up a gum tree taxationwise in the UK because you cannot use a company to buy just one property here as this is seen as tax avoidance in the UK whether the property is here or Katmandu and regardless of the local tax rules applying.
Anyway, it is a fair chance that you are UK tax domiciled anyway (not resident this is different to domicile) which means that regardless of anything clever you might have done or think you have done you are an owner of shares which contribute to your worldwide estate which when added to all your other assets, wherever they might be, is subject to taxation in the UK - and this measn IHT when you die. So if your Spanish property shareholding is in excess of the nil rate bands applying to your death situation then you will be liable to inheriatnce tax in the UK regardless. This will of course generally be less than you might have paid in Spain of course.
The bottom line therefore is if your Spanish property is all you own and it’s an itty bitty little place then yes your estate does end up with no IHT against it because its value or rather the value of the shareholding in your estate is less than the UK Nil Rate Band(s).
However as I say this is all academic because the loophole will soon be closed and everyone who thought they were being ever so clever avoiding tax will find themselves taxable again and then they’ll need my contact details.
The status of a UK company in Spain or anywhere in the EU is governed by EU rules and there is no proposed legislation to penalise any member country. A UK company in Spain must be treated the same as a Spanish Company. EU rules state that a EU Company can select in which jurisdiction it is to be taxed , This means that if you select the UK you are subject to UK Taxation.
This is far preferable than Spain. If the property is owned by a UK Company then no taxes are payable in Spain. No IHT,No Wealth tax No 25% rentals. This is not a loophole as you suggest but a commercial facility. With the UK Company operated as a trading company subject to HMRC rules, tax reliff can be obtained on all attributable expenses including Bank Mortgage interest, Council taxes, insurance and the like.
With regards to IHT no probate or ISD in Spain. As far as the UK is concerned Shares in a UK private trading limited company are exempt from IHT and if you sell the shares then there is only 10% capital gains as opposed to 18% in Spain and the UK on property.
Remember if you are UK Domiciled you would have to probate the estate in the UK adding the Spanish property to other UK assets and then pay IHT under the UK rules. You would then have to probate each recipient individually and they would pay the taxes in Spain, as they are 2 different taxes 1 on the estate and 1 on the recipient no treaty or offset exists so double taxation applies, a UK Company overcomes this problem.
I would be interested to know how you would deal with say a 300000? property owned by UK Domiciled people. I await your reply!
What you say is correct insofar as it goes other than your assertion that the loophole is not a loophole and is not about to be plugged - but I’ll let that pass. The rest of my hasty posting was about my concern for the fact that the UK liabiloties were not covered and rather than bore you with my own diatribe I though it would be useful to throw the thing at our tax lawyers; so their response to your posting as follows and puts the icing on the cake of my first post:
As you are aware Rex the shares in the UK company will be subject to UK IHT @ 40% because it is an investment company thus no Business Property Relief
Also if the property is sold this is liable to Corporation tax on Capital gains at the lower or higher rate depending on the amount but both of them are higher than the CGT rate for an individual…...
The Company having paid tax (and any Spanish taxes and duties payable by a vendor on disposal) will then be sitting on cash
There are three means of extraction
1 Dividend
2 Bonus under PAYE
3 Liquidation
4 Trust based extraction
Only 3 pays CGT at 18%, 1 and 2 are taxable in the usual way and using 4 results in no tax at all and no tax ever again in the future, capital or income, personal or business.
I do hope you will inform all your clients of these facts and pass them our contact details so we can button things up for them.
As for your ?300,000 property clients I would be pleased to send you the briefing document for the solution if you’d let me have your email address.
How do you legally reduce liability to a minimum on a ?300,000 property in Spain , either on Sale, Death, Inheritance, ( I suppose there are two conditions, Resident and non resident), I dont mean to Hijack the thread, I will repost or ask admin to move if not relevant.
Mike
You can eliminate all taxes in Spain by gifting your property to a UK private limited Company .
The previous contributor states that 40% IHT would be payable in the UK if the property is an Investment Company this is correct .
If the company is a UK private trading limited company then the company is exempt from IHT ,the key word is TRADING this is defined by HMRC and as long as the HMRC criteria is met then no IHT will be payable .
We provide the full service to our clients this includes the Company formation the gifting of the property to the Company and the preparation and filing of qualifying accounts in the UK, as we cannot advertise on this site unofficially you can contact me through the private section for more details
I have been using this Forum for about a year to research whether there is any other solution in removing Spanish Inheritance Tax for my Heirs and my Beneficiaries, other than purchasing and owning the property I bought via a UK Limited Company. The research I have done and the comments made to this Forum still lead me to believe this is the only true legal way to safeguard against IHT in Spain. It will be great if anyone can confirm any other way of removing Spanish Inheritance Tax in Spain on my property other than the UK Company ownership route.
My first post on here, I currently own an apartment with 3 other people
Wife, Mother in law & Father in law
Father in law is quite ill and we need o look at the practical side of things like IHT. i was thinking of putting the apartment into a UK based company as I have heard a lot about it, can anyone confirm that this is the best route and approx cost against cost of paying IHT ?
Property is worth approx 130,000 euros, I have beeen told that IHT will not be much but probate will be a large expense.
Brin
You can save all ISD(IHT) in Spain and the probate costs if you put the property into a UK Company then the shares of the deceased will be dealt with in the UK probably free of IHT. You can obtain a free illustration of your probable IHT costs in Spain by logging in to winchamiht.com and requesting a free illustration.The cost of investing the property into a UK Company is ?5000 all in including Notary fees a small price to pay to save many thousands of costs in Spain. Does your Father in law have a Spanish Will if he does this may prove costly as the taxes will be payable if you are lucky then he may only have a UK Will and then you could vary this to leave his share of the property to a UK Company. A UK Company does not pay IHT in Spain.
As mentioned earlier in this post I own a property in Spain and bought in a UK Limited Company so I can tell you from first hand experience.
a: I do not own my Company on my own so multiple people can own the Company who in turn own the property in Spain.
b: We only require a Will in the UK to leave the shares of the Company to our Beneficiaries, No Will in Spain is required as the property will not be directly Taxed by the Spanish Government when we die, nor do we have to pay annual Ownership Taxes as our Company Tax returns which we put into Spain each year are at zero as the Company has elected to pay its Taxes solely back in the UK.
c: When we bought in our UK Company the purchases was taken care of for less than ?10,000 by my Consultant.
Please let me know if you require my Consultants details as they have offices both in the UK & Spain.
Most Lawyers in Spain recommend you have a Will in Spain but the Wills are registered in Madrid and therefore are set in stone, when there is a death the Taxes have to be paid by the Beneficiaries within 6 months otherwise fines may be issued by the Spanish Government. Also the Lawyers in Spain are on a good earner as they charge each Beneficiary Legal fees to probate in Spain which could be anything from 5,000 to 10,000 euros each, and they also tend to charge on a percentage basis in Spain so it might even be more.
Once you have your property in Spain owned via a UK Limited Company it removes the asset from Taxation in Spain so you simply need to cancel the Will in Spain with a Lawyer, and then make or amend your UK Will to leave the shares of the Company to the Beneficiaries which leaves the estate to be Taxed in the UK only.
Thanks for your help with this, this is becoming a complete nightmare and is causing me sleepness nights…I simply cannot afford this sort of money!!
How much does changing/revoking your spanish will cost, Father in law is still with us but for ease can this be done by power of attourney in UK ?
Also, if the Spanish do impose fines what happens if you can’t pay them, does your property get taken (there is no mortgage on it) ? and if so would this affect your credit rating in the UK ?
Just want to say that I have spoken to Malcroach today and he has been more than helpful, hoping to meet with him next week so will keep this forum updated.
