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Spanish Inheritance Tax - FAQ's : Part 3

By Jaime Vives - Fri 6th Nov 2009

8.). So what does the UK Company option do for me?

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Once the property is invested into a UK Limited Company it will be owned by the Company which will in turn be owned by the Shareholders of the company which will of course be the original owners of the property.

How does that help when I die? - Once you have invested the property in the company you can leave your share to your intended beneficiaries. All you will need to do is to change your UK Will to state who you want to leave your shares to. When you die it is a simple process to move the share and issue a new share certificate to the beneficiary or beneficiaries after your Will in the UK has been probated. As it is the company that owns the property and the company does not die there is no need for probating in Spain as, in so far as the Spanish authorities are concerned, the ownership of the property remains exactly the same. The end result is no probate in Spain, no taxes in Spain and a smooth and seamless transfer of the ownership of the property.

Are there any other benefits? - Yes there most certainly are and I will explain the most important ones below.

Wealth tax -

As a non resident living in Spain you will be required to pay Wealth Tax annually based on the value of the property. Once the property is invested in the company this no longer applies. By law UK Limited companies are not liable to pay Wealth Tax in Spain.

9.) Capital Gains Explained

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In Spain the standard rate of Capital Gains Tax (CGT) is 18% of the increase in the value of the property over the original declared purchase price of the property and this is payable on a declaration basis. As many Non-Spanish residents sell up and leave Spain without paying this tax the Government has provided for a With Holding tax to be retained by the purchaser based on 3% of the sale value. This tax has then to be submitted to the tax office by the purchaser. It is then incumbent on the seller to submit the required documentation to recover this tax if it is not due or the pay the difference.

It is a fact that, in the past, many people under declared the value of their property, at the time of purchase, to reduce the liability of purchase tax (normally 7%) and Land Registry fees of 1%. This became known as a Black Money deal where large sums of unrecorded cash would pass between the purchaser and the vendor. Obviously this is illegal under the new International Money Laundering Regulations (MLR) and leaves the purchaser open to investigation as to the origin of the funds. Whilst this method would save 8% of the Black Money in tax it leaves the purchaser with the prospect of paying CGT in both Spain and the UK when the property is sold. In this event if the purchaser did not wish to deal in Black Money the full value of the property would be declared and this would result in CGT being payable by the vendor on the difference between the original declared purchase price and the sale price. UK citizens may have to account for CGT in Spain and the UK and the tra nsaction, in any event, should be submitted on an Annual Tax Return.

10). What are the Capital Gains & Transfer Tax implications when Investing my property into a UK Limited Company?

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There is no CGT implication in Spain. 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 would be the new investment value with no CGT in Spain.

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