So what does the seller pay? Furthermore, the seller is liable to pay capital gains with certain allowances if the property was purchased before The question now is: who is in the better position when it comes to selling a resident or non-resident? So it is clearly more advantageous to sell as a resident — or take another route as a non-resident. In order to decrease the expenses in the sale of a property one of the best options is to set up a Spanish SL company Limited Company and purchase the property through this company.
If a Ltd. Then differences between this possibility and possibly inheriting a property owned by a non-resident can be huge depending upon the individual circumstances.
Finally one must point out that it is not always advisable to purchase a property through a Spanish SL Company, it is recommended when 2 circumstances come together: when the property has a value higher than Law firms in Spain will have no qualms incorporating a Spanish or foreign company i.
This is perfectly legal. They may even offer them off-the-shelf for a reasonable fee and additionally offer bookkeeping services. The company will then be placed on top of the Spanish real estate.
They will however, following new legislation, be reluctant understatement when it comes to devising and incorporating more complex corporate structures, specifically offshore ones. This fine red line marks the difference between tax avoidance legally acceptable tax planning and tax evasion criminally pursuable.
Affluent families have a mandate to preserve and accumulate wealth for future generations. Some corporate structures i. Scottish ancestral castle. So basically this law marked a turning point no longer allowing a fool-proof system that accommodated the warm mantle of anonymity i. Anonymity is now achieved, yes, but to a certain extent only, at a basic level, as it limits the exposure to third-party information requests.
However, it will remain glaringly visible to the Tax Office, or a judge, if needed be under this new law. Spanish lawyers and financial advisers are under great scrutiny and face stiff penalties, including severe jail terms, if found guilty on devising and collaborating in the set-up of tax avoidance structures. Every week we are treated with an unpleasant new story on how some prominent law firm or lawyer has been found guilty and charged.
For this reason alone Spanish lawyers and law firms in general are now highly reluctant to devise, assist, create or abet in any manner whatsoever such corporate structures. Much less to accept appointing themselves as administrators of said companies. It is open to debate. New treaties, such as the Double-Taxation Agreement with Spain dating from has been recently amended in London on the 14th of March in an attempt to plug existing holes.
Traditionally European countries had the onus of undergoing protracted and expensive multijurisdictional investigations requesting information on a particular individual or company from other European countries to which not all complied with or the information supplied was often scant, incomplete and outdated. This pilot scheme no longer requires the signatory countries to actively pursue the information; it is actually fed back to them on a regular basis automatically on a wide range of companies and individuals falling within certain parameters.
The possibilities this leads to on cross-referencing information are significant if done right. This creates a spectacular perverse incentive as now inspectors have truly a vested interested of their own in targeting tax avoiders. Some regions now incentivize and are more lenient, specifically on inheritance taxation, on having property under your own personal name rather than through structures which is being increasingly more taxed.
In light of the ongoing recession and high levels of unemployment some European countries, i. Spain, are cash-strapped and have become increasingly more aggressive pursuing tax offenders. Not exactly the best of times to be setting up structures to mitigate taxes really. Depending on the structure chosen this can range from several hundred euros a year for basic bookkeeping services to raking up dozens of thousands on more complex structures.
You really have to ask yourself, given your wealth level and coupled with the value of the underlying asset, if you can actually afford or even if it is worth your while engaging in huge annual running costs on the long run that may even come to negate altogether any tax mitigation sought.
So many scary stories over the years it is hard to list them all. When you relinquish control of your asset through a power of attorney in favour of a physical person or a company abroad you better be sure of what you are doing and ensure you are fully aware of the risks this entails that may lead your beneficiaries to lose control of the asset upon your death. Scaremongering, a time-proven sales tactic.
Car and insurance salesmen, in my experience, have always been top of the game at this because they know exactly what makes a customer tick.
I will try to cast away some of these widely held misconceptions. Only in the most extreme cases would you pay such a high amount. Also the beneficiaries of the bulk of the estate are normally children, not non-relatives which do not qualify for tax allowances. The significance this has is that the taxable base the k would then be split amongst the heirs dramatically reducing the IHT liability as it follows a sliding scale. To this you must also add the legal and family allowances both national and regional which reduce the percentage to be paid even further.
Also worth mentioning is the fact that the taxable base for property is well-below the true market value. On average couples have two children. Children are classified in Group I for inheritance taxation purposes. In other words, the state allowance completely offsets the inheritance tax liability meaning they pay nothing on inheriting in Spain in this example. On top of this there are autonomous regional allowances that children may benefit from.
When the surviving spouse passes away the same result will unfold again providing the laws are not changed.
In this particular case the inheritance liability would indeed sky rocket over a million. For this particular case I strongly advise obtaining an estimation on the inheritance tax the beneficiary stands to pay.
False Fact: Same as previous point. Selling a property would be exceptional. Moreover, you cannot inherit anything until you have first paid inheritance tax. Only once the tax duties have been settled and the property is lodged under the name of the beneficiary at the Land Registry is he free to sell on if he wishes as the property is now legally under his name to do with it as he pleases.
False Fact: Everyone inheriting in Spain would then be broke. Misleading Fact: Spouses indeed are not exempt from paying inheritance tax in Spain but they qualify for legal tax allowances.
If resident in Spain then the surviving spouse is entitled to further autonomous regional tax allowances. These allowances, both from the state and from the autonomous region where the property is located, may greatly reduce the burden. Misleading Fact: Scaremongers love quoting the extreme Clearly a problem affecting only a privileged few.
Not a problem that the vast majority of beneficiaries inheriting in Spain will have to contend with unless they are already multimillionaires. This falls outside Spanish inheritance tax. Likewise non-resident beneficiaries of a property located in Spanish territory also stand to pay Spanish inheritance tax ex art.
Spanish Criminal Code. And to close I would like to take the opportunity to dispel a malicious misunderstanding on misreading one of my articles: Making a Spanish will. But it is extremely useful to save your beneficiaries time, money and hassle at a time of bereavement. Without a Spanish will a beneficiary will normally incur in penalties and surcharges for late payment on inheritance in Spain.
UK probate, in my professional experience, always exceeds the six months deadline if there is no Spanish will. In which case penalties and surcharges are accrued and added to the inheritance tax for late payment. I hope this clarifies the misunderstanding. Another matter is if Spanish authorities do not get wind on the death of an owner who holds company shares, property or other assets. The statutory limitation of 4 years on all taxes, including Spanish Inheritance Tax, may kick in timing out the obligation to pay inheritance tax altogether — there is nothing the Tax Office can do after said time has elapsed to claim payment of inheritance tax from the beneficiaries.