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Mark Roach

Director (UK)

Wincham Consultants Limited

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Spanish Inheritance Tax - FAQ's : Part 4

By Mark Roach - Sun 15th Nov 2009

Tumbit Approved Partner

11.) What if I want to sell the property – will the fact that it is in a company be a problem?

Not at all – in fact it is actually beneficial to both the vendor and the purchaser if the property has been invested in a UK Limited company.

How does that work?

- Normally when you sell a Spanish property the purchaser has to pay approximately 10% of the value of the property in taxes and lawyers fees and there is a 3% retention and Plus Valia Tax which is held by the buyer and is paid to the Spanish tax office to offset against the potential Capital Gains Tax liability of the vendor.

On a property valued at 200,000€ this would mean the vendor would loose 6,000€ of the sale proceeds and the purchaser would have to pay an additional 20,000€ in taxes and lawyers fees. By purchasing the company that owns the property none of this would be necessary. All that is needed is a simple Sale and Purchase Agreement which states that the purchasers agree to purchase the company at the agreed price of the property and at the time of the purchase the purchase proceeds will discharge any existing mortgage on the property and repay the Shareholders loan account.

As mentioned previously this loan account will equate to the original investment value as specified at the time the property was invested into the company plus any subsequent Shareholders Loans to meet the running costs etc. At the time of the sale the new owners of the company will be appointed as Directors and Shareholders and the existing Directors will resign. This provides for a quick and seamless transaction which does not even require that the vendor or the purchaser visit Spain to complete the transaction if they do not wish to do so.

Once the new Directors and Shareholders have been appointed they will continue to benefit from owning the property in a UK Limited Company in exactly the same manner and will be able to instruct their lawyers as to whom they wish to leave their shares in the company to in their UK Will.

It would be necessary to undertake property searches in Spain to identify that the asset is unencumbered and has all legal licences. It is also necessary to undertake due diligence in respect of the UK company to ensure that the company is in good order.

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Dear Caroline, Please bear in mind that any Nationality in the world can own a UK Limited Company and be a Director of one including both Residents and non Residents of Spain. This means that a potential purchaser of the Company may not just be British as all Nationalities have the Spanish Inheritance Tax problem in Spain and by owning in a UK Company they can protect themselves and their Beneficiaries from Taxation in Spain. Now in all fairness a Spanish purchaser would not have any desire for a UK Company so a representative of the UK Company would attend a Notary in Spain on sale and simply sell the property from the Company to the buyer and the 7% Transfer Tax would be paid by them no differently than if they were buying from an individual, so you have both methods available on sale, the first is to sell the Company and the second is to sell the property out of the Company.

Mark Roach, Wincham Consultants Limited - Tue, 7th Dec 2010

What happens if the purchaser is a Spaniard? I read the above to imply that the purchaser is British.

Caroline Garrard - Mon, 6th Dec 2010