"With current legislation and tax laws there is an opportunity for considerable taxation savings by purchasing new overseas property under the umbrella of a UK limited company"

Introduction by Joe Howard

Joe Howard is the Senior Partner of Howard Mathews LLoyd Accountants UK

Taxation is a hugely complex subject not just in the UK but worldwide. 

Matters become even more complicated once we acquire assets abroad as there are then two arms of the tax man to deal with.

The last ten years has seen taxation becoming more complex within the UK particularly with regards to anti-avoidance provisions and off-shore assets. 

This does not just mean havens such as the Isle Of Man and the Channel Islands and exotic areas such as Bermuda but anything owned by the UK tax payer worldwide. 

The most common of these relate to holiday homes in mainland Europe and particularly Spain. 

In addition to that there are those that have sold up from the UK and retired to sunnier climes.

Many think they have escaped the clutches of the UK tax man. Regrettably this is not always the case.

Many of these individuals do not employ the services of an accountant as all their income tends to be taxed at source, their dealings with solicitors tends to be related to purchase of property and occasionally wills.

Those who are involved in businesses, and deal regularly  with accountants tend to find that there is often a difference between the advice given by the accountant and that given by the solicitors, as most do not want to tread on each others toes.

There has been a great deal of publicity of late concerning inheritance tax and there have been moves by both major parties to reduce the burden of this. 

Unfortunately the latest pre-budget report issued by Mr. Darling served only to confuse the matter further.

Suffice it to say that above the exemption limit most estates will be hit with a 40% tax charge unless steps are taken to alleviate the situation.

With current legislation and tax laws there is an opportunity for considerable taxation savings by purchasing new overseas property under the umbrella of a UK limited company. 

These advantages can also extend to property already owned. 

The major advantages of this are as follows:    

1. The asset becomes UK based and can therefore be dealt with by an individuals normal solicitor and a small amount of input from the companies accountants.  The instructions regarding the shares can be left within the UK and it will not be necessary therefore to have Spanish solicitor or indeed Spanish will. 
   
2. Transfer of the shares and consequently the property and indeed its accessibility can therefore be more or less immediate. Even without a will this transfer will be far speedier than in Spain where it can often take years to transfer ownership to the surviving partner particularly where somebody dies without a will.
   
3. Whilst the value of the property will reflect in the value of the shares for an individual’s estate it may be possible to reduce this under inheritance tax provisions by claiming business property relief thus passing on the asset tax free.  There are obviously conditions related to this which will vary on the individual’s circumstances.
   
4. Family members can become involved with the company by way of directorships and/or share ownership.  Control can still be exercised by members if they make sure that the appropriate structure is in place to safe guard both their own position and indeed the principal asset i.e. the property.

From April 2008 the tax law changes to remove the benefit in kind for owner/directors in relation to property overseas.

• Any expenses related to the property and indeed visits to the property can be paid by the company from loans made to the company by the directors/shareholders. 
  
• This then becomes an asset of the individual and can be passed on at the time of death thus creating additional benefits to the beneficiaries.

In the event of the property being sold the company would be liable for Capital Gains Tax at either 20% or 29% compared with an individuals top rate of tax of 40%. 

Any funds injected into the company i.e. deposit on property, maintenance costs insurance etc could be withdrawn tax free leaving the balance to be distributed either by way of dividend or capital distribution.  Dependant upon the tax payers personal tax circumstances these funds could again be available without any additional taxation liability.

• The property could also be sold by way of sale of the shares but again there could be further tax planning opportunities with distribution of shares amongst members of the family which would impact not only on the Capital Gains Tax liability but also on the Inheritance Tax position.

The above outlines some of the advantages of owing overseas property in a UK registered limited company.  Individual circumstances will dictate the level of savings which will vary.

Clearly however all parties will benefit from cost savings by not needing the following if we take Spain as an example.

1) A Spanish agent to dispose of the property or death a cost which is normally 5%.

2) A Spanish solicitor to compile a Spanish Will.

3) A Spanish solicitor to deal with the estate in Spain.

4) Spanish taxes on death or a sale due to the increase in property value.

5) Increased UK solicitor’s costs in dealing with their counterpart in Spain.

In addition to the above there are the added complications of language and by no means least the time scale of dealing with matters.

To this end the creation of a tax efficient United Kingdom company is a sensible strategy for reducing inheritance taxation on foreign owned properties

[ TOP ]

Spanish Property Inheritance Tax Exposure!

Comments by Mr Paul Austen of Paul Austen Associates, A Chartered Accountant in the UK.

I wanted to make you aware of a significant potential tax exposure to anyone you know who may have a Spanish property.

What is the problem?

The potential problem is that under Spanish tax regulations on death of an owner of the property in Spain, a UK resident individual will become liable to Spanish Inheritance Tax (Known as ISD).

This is different to UK inheritance tax and because it is different you get no double tax relief. You also get no relief from the property being inherited by your spouse or partner as you do in the UK.

Therefore thousands of British people owning Spanish property are unknowingly exposed to this Spanish Tax on their death on the value of their property and the tax falls on the person who inherits the property not on your own estate. Therefore by not protecting yourself against this tax you are handing down a potentially huge liability to your spouse or offspring. Because the property along with any Spanish bank accounts can get tied up in Spanish red tape for sometimes as long as two years, getting money from the property sale is often not an option so your relatives would have to find the money themselves!!

Is there a solution?

Fortunately there are simple ways that you can protect yourself and your family from this tax and we have teamed up with Wincham Investments the UK"s leading provider of protection in this area.

[ TOP ]

Introduction by Martin Ward

Martin Ward - (FCA), A Chartered Accountant in the UK

Firstly, a few words about myself... I am married with two daughters at university, and I live in Solihull in the West Midlands. I trained and qualified as a chartered accountant with Price Waterhouse (now PWC) more years ago than I care to remember. I have managed a recruitment agency for accountants, and for ten years I was financial director of one of the UK’s major charities, following which I ran my own small business in video production. I then returned to life as a professional accountant, acting as consultant finance director for clients in industry and commerce, a function which I carry out today. You might say that my career has been as well rounded as my figure!

More seriously, and relevantly, some thirty years ago when I was still single, I purchased, jointly with a friend (also an accountant), a property in Fuengirola on the Costa del Sol.

When I belatedly got around to organising UK wills for myself and my wife, my solicitor advised that I should also have a Spanish will. This seemed sensible, and being cost conscious as all good accountants are, I searched the internet for a Spanish solicitor who could provide this service at a fair price. It was this exercise in information gathering that drew my attention to the apparent nightmare of Spanish succession tax (Impuesto sobre Sucesiones y Donaciones, or ISD for short), and the multiplicity of comment about various scenarios to avoid it – Spanish wills, Spanish companies, offshore companies, UK companies etc etc with a whole plethora of comments of the “yes you can, no you can’t” variety. What was clear was that ISD was a potential nightmare. I had thought that, as a UK taxpayer, my share of a Spanish property would fall into my estate and be subject to UK inheritance tax, and its reliefs. I had no idea that that was not the case, and that my wife/children would need to sell the property (and try selling half a property!) to pay Spanish succession tax. A nightmare indeed!

Returning to my information gathering, much of the internet comment was from and about Wincham Consultants. Now I have to confess, I was a bit cynical. Accountants, and particularly chartered accountants can be a little precious about whose opinions they respect – Price Waterhouse, KPMG, Deloitte – certainly - but Wincham........who were Wincham? Also, assuming the UK company route was the way to go, how hard could it be to sell our own property to our own UK company? We are both professional accountants, we’ve been in and about Spain for thirty years ...........it should be a piece of cake to do it ourselves! I spoke with my tax adviser contacts at major accounting firms in the UK, and whilst they were aware of the issue, they had no “product” to deal with it. They would act for “high net worth” individuals on a bespoke basis, charging bespoke fees for particular arrangements as they were suited to individuals’ particular needs.......and at £500 per hour, bespoke fees are not insignificant. I concluded that, if it was considered a complex issue by the leading accountancy firms, it would be too complicated for me!

So, nothing ventured etc., I decided to attend Wincham’s training course for consultants, not especially with a view to operate as a consultant, but to learn ..........and I did learn!

Firstly, within an hour of the starting the course, it was abundantly clear to me that the UK company route was the only sensible way to go. To be blunt, apart from avoiding the nightmare of ISD, if you think UK tax is complex and bureaucratic, I can assure you, if you don’t know already, that Spanish tax is much worse, so better to get away from it altogether.

It quickly became apparent that a DIY approach to transferring a Spanish property to a UK company was not on the cards... for me or anyone else. Wincham have invested considerably in professional advice, both in the UK and Spain, to set up legal processes in Spain that will achieve the required result with a minimum of input by the client or their professional advisers. It is very efficient and quite unique.

Thirdly, and most importantly, by the end of the course I was 100% convinced that Wincham had developed a tax planning “product” that works, and just as importantly, that Wicham had put in place a process to provide that product that was both transparent to the client, and simple to understand.

I decided not only to use Wincham myself, but also to promote Wincham’s service as a consultant. Indeed, I am very happy to do so. Nothing will give me more professional pleasure than to help people avoid the nightmare of Spanish taxes in general, and ISD in particular. We want to enjoy our Spanish property without any worries about Spanish tax - there’s enough on our plate with UK tax..........and I want to help other people to do so as well.

Whether you already own a Spanish property, or are considering acquiring one, as a Wincham consultant, I am available to talk to you and/or your professional advisers (accountant, solicitor, FSA etc) about using Wincham to provide you with the UK company route to tax savings, and if you have any worries about owning and running a UK company, I am sure I can ease them........I do it all the time!

[ TOP ]

Conclusion

Restructuring your property now is a legal, intelligent and very simple process to save a small fortune in future taxes for your heirs.

The Wincham Investment property strategy takes care of everything for you.

We use qualified Lawyers, company formation agents, accountants and business consultants to restructure your property ownership.

You will NEVER lose control of the property, and can rent or sell it as you wish

Apply for your no obligation proposal now