Malcolm Roach M.I.C.M

Director (UK)

Wincham Consultants Limited

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By Malcolm Roach M.I.C.M - Fri 6th Nov 2009

 

Tumbit Approved Partner

4.) My wife and I are both residents in Spain so surely this does not affect us?

But what about the beneficiaries when you have both died? If your contingent beneficiaries do not live in Spain then they will all need to go through the process of probating their part of your Estate. You may be resident in Spain but domiciled in the UK and in either case your beneficiaries will need to probate in Spain. As previously stated Residencia does not necessarily mean that you are domiciled in Spain.

OK so what can I do to simplify things? - The simple answer is that you can invest your property in a UK Limited Company.

Why not a Spanish Company or an Offshore Company? - Neither of the above options will provide the same benefits. Investing the property in a Spanish company will still mean that on your death your beneficiaries will have to go through the probate process and pay the relevant Spanish Taxes. Investing the property in an Offshore company does not give you any benefit either as the Wealth tax for offshore companies is prohibitive.

5.) I have been advised that I should put part of the property in my Son and Daughter’s name – is this a sensible option?

Not really. Whilst this can legally be done, there are inherent risks. Once you have placed the property in their names it cannot be reversed and, if the recipient is involved in matrimonial issues or Insolvency issues, it could put their part of the property at risk. It may also create issues in the UK in respect of gifting to family members. If the Transfer is done after purchase then there will also be the 7% Transfer Tax in Spain on the value of the asset moved.

This method will still leave the new Beneficiaries of the property with the same requirement to probate should any of the owners die in the future, this in turn would leave them the liable to pay Spanish Taxes at the time of probate, together with all the other issues previously mentioned.

6.) If there is a mortgage on the property can it still be transferred to a UK Company?

In Spain a mortgage and a loan are 2 separate items as the mortgage is the charge / guarantee for the loan lent against the property. A Mortgage (Hipoteca) is recorded against the property on a public deed and a 1% land registration fee is payable which is charged on the mortgage value, usually 1.5 times the loan value, to remove the mortgage a further public deed is required and a 1% land registration fee is payable based on the mortgage value. It does not matter if the property is in the individual names of the owners or the Company as the bank will simply reposes the property should the loan repayments not be made. Once the property is in the ownership of your Company then the loan repayments can be made from the Company bank account. The bank account will be funded by the owners of the Company or from income that is collected from the property. The interest and other expenses can then be offset against any income to the company which cannot be done if the property is in your own name.

7.) I was also advised to take out a 100% mortgage on the property should I consider this?

Some advisors do recommend that you take out a 100% interest only mortgage and this is mainly that they are motivated by the commission to be earned. Whilst it is true that Spanish IHT is only paid on the un-mortgaged portion of the property you will have to carry the burden of interest payments for the duration of the loan and ultimately leave it to your beneficiaries.

It is usually recommended by the Broker that you place the Equity Release money on deposit to counteract the interest payments. There is little point in following this route in Spain as your deposit monies would be frozen on your death and also the interest to be gained will always be less than the interest paid.

In some instances the Equity Release could be used to discharge a mortgage in the UK which, today, bears a higher interest rate than that in Spain. This option could be worth considering as, under those circumstances, it would be saving interest paid in the UK.