Pitfalls Of Owning Spanish Property In A Company

28.07.14

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Spanish succession tax can be damaging, but you need to ensure the arrangements you use to avoid it comply with tax laws and achieve your aims without unexpected consequences.

Inheritance tax is often referred to as a ‘voluntary tax’, because there are usually steps you can take to avoid or lessen the impact for your heirs. You should however be circumspect about the arrangements you use, to ensure they comply with tax laws and achieve your aims without unexpected consequences.

Spanish succession tax can be damaging, especially if you are not habitually resident in the region. Arrangements promising to avoid the tax on Spanish property can therefore sound attractive. One controversial method has been to transfer it into a UK private limited company. While some promote this, Blevins Franks advises against it. Our research concluded that it was not recommended for several reasons, including:

  • The UK company shares are a UK asset, so liable to UK inheritance tax at 40% regardless of your domicile status (possibly higher than the Spanish tax).
  • If you are resident in Spain, the company can become Spanish resident and subject to local taxes on income and gains. If you are not resident, the company is still subject to Spanish taxes because its assets consist of Spanish property.
  • It will be hard to find a buyer who wants to buy shares in a UK private limited company. If you sell the property instead, the gain would be subject to Spanish tax and UK corporation tax. Shareholders are liable to tax on dividends.
  • The tax authorities could view the arrangement as tax evasion, with costly consequences.

Now the Directorate General of Taxes in Spain has released Tax Binding Consultation V3350-13 warning about a significant risk. It advises that there cannot be a favourable response to the lawfulness of a scheme where property is transferred to a UK based company with the sole purpose of avoiding succession tax. The tax office would need to carry out appropriate inspection procedures. If the scheme is found to not conform to the law, it would initiate tax fraud procedures. The scheme could be deemed to be tax evasion.

The new UK/Spain double tax treaty (in effect in Spain from 2015), also specifically exposes companies with more than 50% of their assets consisting of Spanish property to Spanish income, capital gains and wealth taxes.

These schemes could come unstuck and cost you much more than the tax you hope to save.

Please CONTACT US for personalised advice on how to legitimately minimise taxes during your lifetime and on death.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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