Inheritance Tax: A Cynical Approach
A few weeks ago I was met with an inheritance tax problem enquiry from an elderly lady who had a flat in a Benidorm tower building which she had purchased back in the seventies.
She told me that she had been approached by a company (did not disclose the name) offering her to put the property into a company so that the inheritance problem went away. As I found the enquiry rather strange I decided to make some research into this new proposal. When “googling” IHT Spain, I came across a company called Wincham Consultants Limited. The opening line was somewhat exciting and the following phrase caught my eye instantly:
“Wincham supply a service that we believe is the only legal way of truly safeguarding your assets against inheritance tax”.
To my surprise, that service was the only legal service they were providing (other services included selling houses, renting cars and sourcing cheap flights). Well, this one and only service is no other than setting up a UK company and transferring the property to it.
Further on, I clicked on for more information and arrived at a specialized website in inheritance tax, www.winchamiht.com, whose only service in respect of this tax was, again, setting up UK companies. The opening pitch certainly scares the hell out of anyone:
“SPANISH PROPERTY OWNER? When the time comes…Your heirs WILL be hit with a 40%+ Inheritance Tax Bill unless you act now to protect your legacy”
Which is another way to say:
SPANISH PROPERTY OWNER, when you pop your clogs you better have hired us because otherwise your children are going to be truly f****d!!
You see, the problem with these type of companies offering one single service is that any other alternative you come across is quickly dismissed with, at best, harsh negative criticism and at worst, untrue statements. The word impartiality disappears like sand slipping through your fingers and you never get the true picture.
Inheritance tax planning is a fairly complicated matter because each case is different. In other words, no solution is full-proof and certainly using a UK company is possibly the last best if not the worst. So when reading Wincham’s statements I could not but pick a few out and comment on them:
- Wincham IHT claims that IHT in Spain is 40% +. The truth is that according to a most recent survey, the average IHT bill paid in Spain in three consecutive years has not been higher than 13% (per inheritor), on the taxable base (which rarely is the value of the property).
- Winchan IHT claims that “your husband and wife will NOT be exempt from IHT”. The truth is that approximately 300,000 UK citizens residents of Spain may be exempt of IHT in respect of 95% of the value of the property when they inherit from their spouses, just like the rest of Spaniards!
- Wincham IHT claims (FAQ number 14) that in terms of IHT the recipient of the UK company IS technically liable but subject to BPF (Business Property Relief). They then say that there are a number of rules surrounding this circumstance but that assuming that BPF is applicable then there would be no IHT. Good Christ!! This is like saying that if IHT disappeared altogether there would be no IHT, or if the planet world exploded then you would not have to worry either! The truth is that, for all it matters, BPF is ONLY applicable to relevant business property which is used for the purpose of, you guess, doing business, and this leaves out companies dealing in land or building companies making or holding investments (not to mention holiday homes). I am aware that the UK HMRC is now looking into claims for BPR very closely and in fact these are being sent to a department called Technical Team (Litigation) for detailed consideration. I cannot possibly see how the inheritors of our 82 year old expat living quietly in a 9th floor flat in Benidorm are going to get through the merciless Revenue & Customs officials when these get grab of the file. In summary, I would think that only a few properties could really qualify for BPF and even if they qualify it has to be pointed out that BPR is easy to lose… often at a time when IHT planning is most crucial.
- Winchan claims that transferring ownership of a property from an Offshore company to a UK company will also completely remove Spanish IHT (FAQ number 17). The reality is that having property in an offshore company is possibly the most inheritance-tax efficient set up one can have (through concealment that is and so, not so legal!) so I cannot see why would some want to switch to one of the less inheritance tax-efficient set up.
To summarize, proposing only ONE system to minimize or mitigate Spanish IHT is in my opinion not sound advice. Inheritance tax can be reduced, avoided, evaded or even paid, as the case may be, and tools to achieve these may involve offshore companies, onshore companies, taking out mortgages, keeping quiet for 4 years and 6 months from the date of death of the testator (option chosen by some clients so as to have the tax obligation “timed out” under statute of limitations) and sometimes even incorporating UK companies, and only if a UK qualified accountant (ACCA or equivalent) signs a letter saying that no IHT is applicable in the UK.
The verdict I gave to our test-case Benidorm distressed lady, who wants to leave the property to 4 inheritors, was to draw-up her Spanish will and relax. And in respect of IHT? Well, do absolutely nothing because her €300K property would be transferred to her 4 children for a mere €5,800 per inheritor, or €23K in total, in application of the Spanish Inheritance Tax Act. Fees for setting up a UK company plus costs, taxes and miscellaneous were quoted at around €7,000 to which one would need to add transfer tax (€20,000), which means that this proposed scheme was rather more pointless and even counter-productive than essential.
So Wincham, don’t you think it’s all Much Ado About Nothing…?
Antonio, thank you for this most revealing article. I was thinking about moving forward with Wincham but after reading your article I will not.
I am still thinking about transferring my Spanish Property into a UK company, is the transfer tax really 20,000 euros on a 300k property?
Thanks Again
Gary
Hi Gary,
The cost of transferring a property to a company is currently low, provided the property is debt free. In this case, there is no Stamp Duty to be paid and therefore, the cost should not exceed €2,000 (company cost excluded).
If there is a mortgage loan, the Tax Office will consider that the property value that coincides with the loan is debt for property exchange and will tax it as a purchase sale (8% in this case). The debt free part of the property will be exempt.
The Tax Office has recently declared that they cannot give tax clearance to the Wincham Scheme, but that an individual case by case study will be required to establish whether declaring an English company share transaction as exempt is correct or, on the contrary, can be deeemed tax fraud.
In my opinion, the tax ruling is basically stating -prudently that is- that there is no such exemption.
I trust this clarifies the position.
rgs
Snr Flores,
It is a shame that the above article is still being published by you, as it is inaccurate in many areas, Mr Page has not consulted with us and if he had he would have realised how wrong you are.Wincham International Ltd and SL has continued to flourish since you first published your article in 2010, We have used it many times to show how bad advice can be from some advisor’s.We now have over 8000 clients and non have suffered your scaremongering allegations,in fact we are one of the few Spanish legal companies that provide our clients with 20 years title deed insurance something that it is unlikely you can do. last year we achieved runner up award for the best professional services provider in the legal and tax category of the AIPP Association of International Property Professionals.We can also boast that we have never been party to a under declaration or “Black Money” transaction which is more than can be said for many Spanish Professionals, I wonder if you are so clean, The 82 year old lady you refer to in Benidorm did use our services after reading your article and finding that what we advised was correct and legal, so maybe you should take care about what you publish.There is no Wincham Scheme we just advise on the laws as they exist.
Mr Roach,
Thank you for your comments. In my opinion, your understanding of this matter is incorrect but also, clearly biased.
Whenever offering tax avoidance schemes, legal professionals should not only obtain clearance of their legality but also, if in doubt, stay well away from the line that divides lawful tax avoidance from illegal tax evasion. In my opinion, your product/service has clearly crossed that line and your clients are in legal limbo as far as the purpose of the arrangement.
Don’t get me wrong, they have not done anything wrong by transferring the property into a UK company, but they will have if their inheritors receive, via inheritance, Spanish property through the inheritance of shares of companies abroad…and not pay taxes on it.
The problem therefore lies in offering a product/service to customers that nobody believes is legal, except yourselves.
Snr Flores
it is Seven years since you first published your first blog regarding the advice we provide our International clients and we now have over 11000 clients who have proceeded under our advice.
I can confirm that to date we have not received any questions or claims in respect of our clients transactions from the Hacienda.
what I can also confirm is that we have dealt with over 60 estates through our company Wincham Executor and Trustee Company limited and successfully dealt with the deceased assets in both the U.K. and Spain using the U.K. Company structure, the probate office in both the U.K. and Spain have accepted the transfers of shares held by the U.K. estate and the only tax payable has been U.K. taxation.
I wonder how many of you clients lost out by reading your scaremongering and inaccurate protestations.
for the avoidance of doubt CASER. The Spanish insurance company has provided us with a title deed insurance policy that underwrites our clients potential liability for 20 years far longer than the Spanish statute of limitations in regard to this matter.
I can confirm that our clients have received demands for tax on under declarations for the values they paid when using some Spanish lawyers who complied with under declaring their property values and involved their client in fraud ,and also CGT due to the original underdecleration when they wanted to invest into a U.K. company. This sad for the clients who trusted Spanish lawyers to act in a professional way and in the clients interest.
Maybe you regret your publication as it will have undoubtably lost you clients who researched our advice and decided that your advice was not in their best interest
I hope that we can continue to work severely in Spain for the next decade without the sort of unpalatable communications of the past,
I now am retiring after 40 years of investing in Spain and leave my Son Mark and the Wincham Team to carry on the. Good work we have undertaken to limit International client exposure to non U.K. tax and any possible effects of Brussels 1V
I wish you well in the future
Regards
Malcolm Roach MCICM
Chairman
Wincham International Ltd