Spanish Property
My client owns several properties in Tenerife and is considering setting up a UK Limited Company and transferring these into. The main driver for this transfer is to reduce inheritance tax both in the UK and Spain. It appears that there is no double taxation agreement for IHT between UK and Spain. My understanding is that once the properties have been transferred into a limited company there would be no more Spanish tax.
Does anyone have knowledge of Spanish tax law or know of someone that does and whether there are any pitfalls of making this change.
Thanks for your help.
Flawed
From what I hear, these schemes are flawed as the only way it works is if you sell the shares in the company when you come to sell the property.
Very risky, you need to take advice from more than one legal & tax source in Spain.
Spanish tax
Bear in mind that tax is paid where the property is located. If the property is located in Spanish, Spanish tax on the property will be paid in Spain. What will happen with the properties? Will they be let out?
There a number of different taxes which apply to a property at different stages of ownership: on purchase, on sale and on ownership; the only one will not longer apply is the wealth tax, however, the rules for valuation are still valid in connection with other taxes: IHT, personal income tax, etc.
VAT and transfer tax do not apply at the same time; it is either one or the other, depending on the rules.
Regards,
Juan Carlos
Nearly
Although their is no DTA that covers IHT, HMRC do give credit for IHT paid abroad when calculating IHT payable here. However the Spanish situation is sufficiantly complex and different (e.g tax is payable by the recipient, not the estate, so you have to pay the tax up front before inheriting, and no husband/wife automatic allowance) that putting them in a UK company is a sound idea.
There a number of advisors offering this service, but there may be other impacts (CGT? CT? AIA? I'm not an expert) so make sure you get professional (legal as well as tax) advice here & in Spain. There is a Spanish adviser who often posts here who could get you started....