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Spanish Inheritance Tax - FAQ's : Part 5

By Malcolm Roach M.I.C.M - Fri 20th Nov 2009

12.) If I am looking to purchase a property in Spain can I make any savings?

Yes. It is possible if you have the cooperation of the vendor to invest the property in a UK Limited company prior to the purchase.

This can be done using a simple UK contract provided by Wincham Investments and our legal team can deal with the Company Formation and all legal matters relating to the investment of the property into the UK Company. The cost of this service is 5,000 including all legal costs, formation costs and the translation of the necessary documentation into Spanish.

The savings to the purchaser would be the 7% Purchase Tax and the usual legal costs which normally equate to 3% of the value of the property.

The savings to the vendor is the 3% Withholding Tax. The costs of investing the property into the UK Limited company would be borne by the purchaser.

13.) Is it true that shares in a UK Private Limited Trading Company are free from Inheritance Tax on the death of the Share Holder?

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In terms of inheritance tax in this scenario, then the recipient is technically liable to IHT but subject to business property relief .There are a number of rules surrounding the circumstances, however, the key one being that the company to which the shares relate must have been or be a trading company (as opposed to an investment company for example).

Assuming the business property relief is applicable which would seem likely in this scenario then there would be no IHT applicable.

14.) Do you have to submit annual Tax Returns in Spain for the Ownership of a Spanish Property?

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Spain operates a system of self assessment for the collection of Taxes. Both Residents and Non-Residents with property in Spain are under an obligation to file annual Tax Returns (Tax Declarations) there even if you are collecting NO income from the property. If the property is owned by more than one person then there will be a charge for each extra person except a Husband and Wife who are joint owners and can submit combined Tax Returns. Should the property be owned by a UK Limited Company then any personal Tax Returns may not be required in Spain, and only one Tax Return will be required for the UK Company which could be filled at Zero. If the Tax Returns are not submitted in Spain and the annual Taxes are ignored then the property may receive fines which would be payable should it be sold, Inherited or transferred to a new owner.

15.) What is the process of moving the property into a UK Company and what do you do for the fees which we are charged?

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A. We register a UK Limited Company at Companies House and appoint the requested Shareholders & Directors.

B. All the Company documents are translated into Spanish and Notarised & Apostilled in the UK.

C. A CIF number is then applied for in Spain which is a Company equivalent of an NIE number which allows a Company to operate in Spain, we also provide the Fiscal Representative in Spain for the first 12 months.

D. After all the property details are supplied the appointment with the Notary in Spain is made and the property is invested into the Company. There is no 7% Transfer or Capital Gains Tax on this type of transaction in Spain.

E. Once the Transfer is completed by the Notary the Title deed is registered at the local Land Registry in Spain.

F. The Company will then have a Spanish Corporate bank account setup in Spain and we will help move all the Council, Electric, Water & Utility bills into the Company name and set up direct debits for the payments.

G. We will then inform the Spanish Tax office that the UK Company is going to elect to pay its Taxes solely back in the UK

H. The owners should make sure they have a UK Will dealing with the Shares and loan accounts in the Company, NO Spanish Will is required

I. Spanish Inheritance & Taxation is then completely removed as a UK limited Company does not pay taxes in Spain

J. A Spanish Property can be invested into a UK Limited Company within 2 - 4 weeks if required

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