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The Spanish Property Inheritance Tax Time Bomb

By Mark Roach - Mon 10th Aug 2009

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 too. 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 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 suggested 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 off on death anyway. 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 money or marital issues and if they die before the parents then the parents have to pay Taxes to get the property back too.

Our solution to the IHT problem in Spain is for the owner/s to Transfer the property to a UK Private Limited Company. There would not be a 7% Transfer tax in Spain on this transaction unlike other property transfer transactions. This method may eradicate all Taxes in Spain in the future, in respect of the property, as under EU Law 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 like Gibraltar or the Isle of Man as they are charged an annual Tax by Spain of 3% for not being part of the EU Community.

Shares in the UK Company can be dealt with in a UK Will and depending on the structure of the Company; the Shares may be exempt from Inheritance Tax in the UK. 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 Deductable 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 are not allowed to offset income against expenditure by the Spanish Tax Authorities.

If a purchaser wishes to acquire a property from a seller into a UK Limited company the purchaser can form a UK Limited company using the Wincham Scheme, with the seller as the Shareholder of the company, the seller can attend the Notary and instead of selling the property to the company he can Gift the property to the company. In this instance there would be no 7% Purchase Tax to the purchaser and no 3% retention to the seller. There is a simple Sale of Shares to complete the deal.

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. Our unique service is available to all Nationalities including both Residents and Non Residents of Spain.

Wincham Consultants has been providing this service to Clients for many years and also operates through a number of Approved Consultants who introduce Clients wishing to use this service. Prospective Consultants can attend a two day training course which provides an opportunity to learn how to provide potential Clients with the relevant information regarding both Spanish and UK Inheritance Taxes in respect of Spanish Property Ownership. This is an exciting new opportunity to participate in an emerging and growing market introducing a concept that can only benefit and protect Clients who 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 demonstrating the IHT liability can be found by clicking on the 'Visit Website' link under our address on

Comment on this Blog

Dear Alana, If you would like Wincham to represent your Mothers sale then we can supply a Power of Attorney that she may sign in the UK then we can handle the sale on her behalf once a Buyer is located. Please bear in mind that if your Mother passes away before she sells the property then Spanish Inheritance Tax will have to be paid before the sale can take place unless it was in a UK Company structure.
Mark Roach, Wincham Consultants Limited - Mon, 6th Sep 2010
Hi my mum has decided to sell her place in spain. Sadly she is unable to travel now and wants me to go to the Notary in her place. I believe I need a power of attourney and that an english one will not be acceptable in Spain. Can the forms be sent over here to be filled in or what should I do?
Alana - Mon, 6th Sep 2010
Dear Kate, You may add your property in Spain to the same UK Limited Company but many of the benefits you would loose by doing this. For example you cannot sell the Company when you want to sell the property in the future and save the 3% Withholding Tax if it is running a business when you wish to sell so it is far more beneficial to keep them both separate. Also if your business was ever at risk then you would not want this to have an effect on your property. Not previously submitting the annual Tax Declarations in Spain does not have any effect when you invest your property into the UK Company and the process may actually help remove the 4 year liability for those Declarations not submitted during personal ownership.
Mark Roach, Wincham Consultants Limited - Tue, 31st Aug 2010
Hi there I am interested in transferring my property into a UK Ltd company after reading your information sheets. I purchased a property (a ruin) 5 years ago and am just about to start demolishing and rebuilding it in the next few weeks. I am curremtly in the process of starting up a new business, a website advertising worldwide holiday homes and have registered my company in the UK already. Would it benefit me to add my property to my existing company? My daughter will be its beneficiary and would it be better to register a new company in her name? I have just realised that I have also never registered to do a Spanish tax return and wonder if this will vreate an obstacle or if my transferring/gifting the property will void any penalty for not having done so - a genuinely silly error. Obviously I have never used the property as it is uninhabitable and would therefore not owe anything but I have read that there can be a 3% charge on the sale of a property if you have not registered.
Kate Lockhart - Mon, 30th Aug 2010
Dear Alana, Unfortunately the Spanish Tax Authorities do not allow you to sell the property in Spain or raise finance on it to pay the Tax on her death. It is the responsibility of the Beneficiaries to pay the Spanish Taxes within 6 months of a death so it is transfered to their names and then they call sell the property once they have taken ownership. If you would like to find out the Spanish Inheritance Tax liabilities in Spain then please click though to our website by clicking the Wincham logo at the top right of the page. There you can either visit our own site directly or complete the form at the foot of the page and I will contact you at a time suitable to you, so I can fully explain the problems and supply the solution to how we can completely remove Spanish Inheritance Tax for you.
Mark Roach, Wincham Consultants Limited - Tue, 24th Aug 2010
My mother has lived in Spain for 7 years and has residencia she has now moved back to the uk with a terminal illness and as her executer and daughter (whom she is now living with) I am concerned as to the best way forward regarding dealing with her estate when the time comes. Mum has a british will and a spanish will. she owns a spanish property and a car in spain. Her will instructs me to sell everything and split the money 3 ways, apart from a few small bequests. I would appreciate your advice or a contact name/number of someone who can advise me, or give me a list of what to do and when to do it.
Alana Dunlevy - Tue, 24th Aug 2010

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