Pay IHT in two jurisdictions?

Non-Domiciled property owners in Spain are sitting on a ticking IHT time bomb. Most owners do not understand that their Heirs and their Estate will pay IHT in two jurisdictions, Spain and their Country of Domicile. The reason for this is that in Spain the individual inheritor is taxed whereas in other countries, like the UK, it is the estate that is taxed. This could mean that on the death of an owner the surviving partner, or the owner’s Beneficiaries, could have a Tax Bill that virtually wipes out the entire Spanish Inheritance. Added to this is the cost of Probate in both countries for the Inheritors too. Most Lawyers in Spain recommend to Owners that having a Spanish Will deals with the problem; this is incorrect as a Will only deals with the issue when there is a death and does not remove Taxation in Spain.

Reduce tax

Other advice given is that double Taxation treaties between Spain and the UK will help with the Tax being reduced, this is true in identical Taxes but these are not, as in the UK it is the Estate which is Taxed and in Spain it is the Beneficiaries who are Taxed. It therefore should not be assumed that one Tax can be offset against the other as they are both totally different taxes on totally different entities. Many Owners are advised to re-finance the property as IHT is not charged on the property amount if there is an outstanding mortgage and loan, but this may end up leaving the Beneficiaries with a huge debt they cannot pay off and many lenders will only finance the ownership if suitable life insurance is taken out, so the property is paid for on death and the Tax still becomes due. Owning a property with your children is a favourite, this is not a good idea either as their share of the property may end being at risk through financial or marital issues and if they die before the parents then the parents have to pay Taxes to get the property back.

The Wincham solution

Our solution to the IHT/ISD problem in Spain is for the owner/s to invest the property into a UK Private Limited Company which they would own as Shareholder/s of the Company. Contrary to popular misconception there would be no 7% Transfer tax payable on this specific transaction unlike other property transactions in Spain. There is also no Capital Gains tax implication in Spain when you invest a property into a UK Limited Company, as the Hacienda has a method of calculating an investment value based on the original purchase price as shown in the Public deed and Spanish Tax Residents who are over 65 when they invest their property into a UK Company do not have any CGT liability in most Regions anyway.

Eradicate all taxes in Spain

This method may eradicate all Taxes in Spain in the future, in respect of the property, as under EU Treaties a UK Company is only Taxed in one jurisdiction, the UK, and no Taxes are payable onwardly in Spain. A UK Company is not an Offshore Company as in Gibraltar or the Isle of Man as they are charged an annual Tax by Spain of 3% for not being part of the European Community.

Dealt with in the UK

Shares in the UK Company can be dealt within a UK Will and depending on the structure of the Company; the Shares may be exempt from Inheritance Tax in the UK as well. A further advantage of the Company Structure is that attributable expenses such as Mortgage Interest, Council Tax Bills, Water, Electricity, Repairs and Maintenance can all be Tax Deductible by the Company; this may also include car hire and flights for the Directors. Unfortunately if you own a property in Spain in your own name then you may not be allowed to offset income against expenditure by the Spanish Tax Authorities. The benefit in kind Tax for Directors of a UK Company which own property abroad has now also been removed.

Simple solution

This is a simple solution costing less than most probate and legal fees in Spain when there is a death of an Owner of the property and requires no NIE numbers for the Beneficiaries to inherit. Our unique service is available to all Nationalities including both Residents and Non Residents of Spain and can be completed within 2 to 4 weeks if required.

System developed for many years

We have been developing our systems and process for many years as we strive to be the market leader in this type of transaction so this means Clients are dealing with a Company who has been researching the transaction for a long period of time and has an extensive customer base that has used this method and are extremely happy with the service they have received from us. Clients can also be assured when talking to Wincham they are dealing with professionals who are operating in this type of business on a daily basis, unlike other professionals who are not, but still advise about the method and due to their lack of understanding and knowledge confuse or put off interested owners from exploring the concept. We find Clients are failed time and time again by both Spanish and UK professionals as they are unable to advise on more than one jurisdiction. The Clients website where they can register for their free illustration showing the IHT/ISD liability in Spain is www.winchamiht.com

Wincham is an International organisation that has been established since 1994 helping Clients purchase and own property in Spain using a corporate structure to combat Taxation in Spain. In recent years we have seen a significant increase in the number of people who are concerned about ISD in Spain and are now looking to address the situation to protect their Beneficiaries. Wincham has offices in both the UK and Spain and within our organisation we have qualified professionals in both jurisdictions including Gestors, Economistas, Tax Consultants, Estate Planners, Lawyers, Will Writers, Chartered Accountants, Members of the Institute of Credit Management and a Companies House Formation Agent.

This information has been provided by Mark Roach, Company Director and Spanish Tax Consultant. Wincham Consultants Limited

Do Not Wait Four Years Before You Probate in Spain.

As Spanish Tax Consultants we provide an alternative method of ownership of your Spanish property to help protect against Spanish Inheritance Tax. Whilst discussing our methods with interested clients we hear of many crazy suggestions from advisors in Spain who purport to have solutions for some of the problems faced by non Spanish owners of property in Spain. One of the most common suggestions we hear about is that clients are advised to do nothing following a death for 4 years and hope that the Taxman in Spain does not find out there has been a death of an owner of the property. The reason for this suggestion is that the Statute of Limitations in Spain is 4 years and this means that by ignoring the Tax for 4 years it may be possible to escape paying the Tax 4 years and six months following the death, as you are given a further 6 months to deal with the Probate. Whilst this is possible and we have seen Probate cases where the Taxes have been evaded in Spain by employing this method, there are many situations that could arise should you decide to take the risk.

Legal Requirement

The beneficiary has a legal requirement to probate in Spain and pay all the Inheritance Tax in Spain within 6 months, otherwise fines and interest will be charged on top of the Tax which is due already. The Spanish Government can also embargo the property which means large fines would have to be paid before Probate could be completed. I am currently working on a case where a client has just paid in excess of €19,000 in fines and interest in addition to the cost of Probate and Taxes in Spain just to move the property from her deceased mothers name to hers. Our research shows that interest can be charged by the Spanish tax office at anything up to 20% for assets which are not probated within the allowed period.

Annual Tax Declartions

Every year the registered owner of the property has to submit annual Tax Declarations to the Spanish Government, this is very difficult for a deceased person to do and we are aware that the Tax office is looking closely at properties and levying hefty fines where annual tax submissions have not been submitted. The utility and Council Tax bills will have to remain in the deceased’s name and it is illegal to continue to use a deceased person’s bank account. The intended beneficiaries cannot sell the property whilst it is in the deceased’s name nor raise finance on it to pay any Taxes or Probate costs. What would happen should one of the beneficiaries pass away before the 4 years has expired? This event would result in one probate having to be dealt with before the second deceased’s beneficiaries could inherit.

Bank account frozen

On death the Spanish bank account of the deceased may be frozen until the Taxes are paid so how would the beneficiaries get legal access to this money? Even if the money was withdrawn illegally after death, the Tax Authorities may request a copy of the bank statements in Spain at the date of death to see what amount was in there. If there were funds present on death then this would be Taxable also in Spain.

Limitations on Taxation

Whilst the Statue of Limitations on Taxation in Spain is 4 years this would not be relevant if the Spanish Government could subsequently prove a fraudulent non disclosure had taken place. There is no such Statute of Limitations for fraud, and therefore, there is a very real risk the Spanish Authorities would claim that there was deliberate criminal withholding of information and thereby enforce the Tax retrospectively. Misuse the Statute of Limitations in this manner is a criminal act and highly dangerous method of Tax evasion – not to be advised!

Solution to Spanish IHT

Our solution to the Spanish Inheritance Tax problem in Spain is for the owner/s to invest the property into a UK Private Limited Company which they would own as Shareholder/s. This transaction does not attract the 7% Tax payable when a property moves from one owner to another. There is no Capital Gains tax implication in Spain when you invest a property into a UK Limited Company as the Hacienda has a method of calculating an investment value based on the original purchase price as shown in the Public deed. Spanish Tax Residents who are over 65 when they invest their main residence into a UK Company do not have any CGT liability in most Regions either.

Eradicate property taxes

This method may eradicate all Property Taxes (excluding I.B.I.) in Spain in the future, as under EU Treaties a UK Company is only Taxed in one jurisdiction if it is a non resident Company of Spain and does not trade in Spain. A UK Company is not an Offshore Company unlike a Gibraltar or the Isle of Man Company. Offshore companies are charged an annual Tax by Spain of 3% as they are not within the European Union and this charge is not levied on companies within the EU. Shares in the UK Company can be dealt within a UK Will and depending on the structure of the Company; the Shares may also be exempt from Inheritance Tax in the UK. This results in a very simple and cost effective way of dealing with the transfer of the property, within the UK Company, to the intended beneficiaries and does not involve any of the Spanish authorities in the transaction.

Wincham Consultants Limited.

Wincham is an International organisation that has been established since 1994 helping clients purchase and own property in Spain using a corporate structure to combat Taxation in Spain. In recent years we have seen a significant increase in the number of people who are concerned about ISD in Spain and are now looking to address the situation to protect their beneficiaries. We have offices in both the UK and Spain and with qualified professionals in both jurisdictions including Gestors, Economistas, Tax Consultants, Lawyers, Will Writers, Chartered Accountants, Members of the Institute of Credit Management and a Companies House Formation Agent. Wincham is able to offer an efficient and cost effective solution to clients who wish to ensure that their family will be able to enjoy the benefit of a Spanish property in the future. Please visit our website at www.winchamiht.com to apply for your free Spanish inheritance Tax illustration.

This information has been provided by Mark Roach, Company Director and Spanish Tax Consultant, Wincham Consultants Limited.