"How to pay the least Inheritance taxes for your Investment in Spain".

• A UK Lawyers View

Introduction by Charles Deacon, M.A.(Cantab). 

Charles is a qualified Lawyer with over 40 years experience specialising in UK corporate and commercial law and related taxation issues.

Now aged 65 and retired from general legal practice, Charles is the Managing Director of Veritatis Consultancy Limited, legal and corporate business advisers.

Abridged version - full version here

If you have bought a Spanish property for:

• a holiday home
• a retirement home
• an overseas investment 

Or have sold everything in the Uk with the intention of emigrating to Spain permanently, you may well be considered as domiciled, as well as resident, in Spain for taxation purposes.

However, residence should not be confused with domicile – domicile is in effect a person’s choice of permanent ‘home’ country . 
 
Many who retire to Spain may not adopt Spanish domicile, only residence.
 
The Company ownership scheme is principally of interest to those who are domiciled in the UK
 
UK Inheritance Tax affects any individual, regardless of where they are domiciled and affects properties they own - regardless of where it is.
 
To die owning property in Spain may prove costly, both in terms of taxation and legal and administration costs. 

When a person with a property in Spain dies, if they have a Spanish Legal Last Will & Testament, that Will is relevant and legal only in Spain 

Any Spanish taxes and all the legal and administrative costs will have to be paid.

If the beneficiaries of that Will do not have the funds available to pay the taxes, the property will have to be sold.

Trying to apply the provisions of a UK Will in Spain is fraught with difficulty, and often does not succeed in Spanish Law, The result is a time consuming and expensive legal process.

In the UK, the value of the Spanish property will be added to any UK property for tax purposes.  This could raise the overall asset value above the IHT tax threshold. 

An example:
Jack and Jill Brown decide to buy a property in Spain for £100,000.

In Spanish law, they each own 50% of the property.

• They remain full time residents in the UK, and use the Spanish home for holidays, and occasional renting to friends and family.

• At the time of purchase, they will pay approximately 10% in purchase costs 
  
• Thereafter, they will pay annual taxes on the property in Spain of 0.5%.
  

10 years Later, Jack dies, leaving his share (50%) to Jill.

At the time of Jacks death the property has increased in value from £100,000 to £200,000

Although no UK tax will be involved, as spouses can leave property to each other free of Inheritance Tax under present legislation, Jill will be faced with paying a Spanish tax of 16% on Jack’ s half share (now worth £100,000 as the property value has increased by 100%).

A £16,000 tax bill + £5,000 Lawyers Fees

On these figures alone, initiating the Wincham tax planning structure today would have saved Jill £21,000

Alternatively, she can wait for 4 years after Jacks death before transferring his share to herself, but she can't sell it within those 4 years.