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Spanish Inheritance Tax - FAQ's : Part 6

By Jaime Vives - Tue 24th Nov 2009

16.) I was told to place my property in Spain into a Spanish (SL) or Off Shore Company.

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Most Owners of the shares in a Spanish SL or Offshore Company are still going to leave their Beneficiaries Taxes to pay in Spain when they pass away as well as Taxes on their worldwide assets in the UK.

The reason for placing the ownership of a property located in Spain into a UK Limited Company is to remove Spanish Inheritance Tax.

Transferring the ownership of the property from their Spanish SL or Offshore Company to a UK Limited Company will also completely remove Spanish Inheritance Tax.

The owners of the UK Limited company will only require a UK Will and will not need a Will in Spain.

To transfer the ownership of the property from a Spanish SL or an Off Shore Company to a UK Limited Company the Shares of the property owning company would be transferred to the new UK Company, the property owning company would be liquidated and the property Registered in the new UK Company. This transaction would incur a 1% Transfer Tax and Plus Valia Tax in Spain but NO 7% Tax. The cost for this transaction is exactly the same as our normal UK Company transaction cost to exclude Land Registry Fees and Power of Attorney and Translations costs.

Most people are advised that an Offshore Company has to pay 3% annual Tax on the asset value in Spain each year, this is true for Companies registered in Gibraltar, The Isle of Man, Jersey, Guernsey, etc, but this is not true for UK Companies. The UK is part of the EU and a UK Company does not pay any Taxes in Spain unlike Offshore Companies.

17.) I believe you do not pay Tax in Spain after 4 years.

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It is true that in Spain the statute of limitation period is 4.5 years and if you are lucky enough the Spanish Government may not chase the Taxes from the Inheritor.

Should the Beneficiary or Co-owner of the property in Spain decide to keep quiet until this period is over then you should be aware of the potential problems.

A. The property deeds will be in the name of the person who has passed away so you cannot sell the property.

B. There is no way of raising finance on the property.

C. If there is more than one owner of the property and they pass away before the property is correctly registered in their name, then this will leave double the Inheritance Tax problem and costs to the remaining Beneficiaries.

D. Most Banks in Spain treat the money in the deceasedís name as part of the Estate so may place a hold on any bank account in the name of the Deceased until Probate has been achieved in Spain and any Taxes due have been discharged. This may apply to bank accounts in Spain that are either in single or joint names. If you do not declare to the Spanish Tax Authorities during the 4.5 year period then you have to be prepared not to have access to the money as the account will be frozen and withdrawals cannot be made on the bank account.

E. Should the Spanish Tax Authorities find out that the owner is deceased then the property may be Embargoed by the Spanish Authorities.

Should you be lucky enough to pass the 4.5 years period then there is a method of transferring the property from the deceasedís name to the rightful owner/owners.

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A. You will need the Death Certificate and Grant of Probate from the UK confirming the rightful Beneficiaries and this will need to be translated into Spanish, notarised and Apostilled.

B. The Beneficiaries will need to attend a Notary in Spain with the legalised and translated Death Certificate and Grant of Probate. The Notary may stipulate a time period within which any other potential Beneficiaries can make claim against the Estate.

An estimate of costs per Inheritor would be in the region of £5,000 and this would include all Legal, Translation and Notary costs in Spain and any Power of Attorney costs. It would not include Probate in the UK or obtaining the Death Certificate and Grant of Probate in the UK. This will exclude Land Registry Fees and 1% Transfer Tax.

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