View Full Version : UK limited company/IHT/transfer tax

09-26-2009, 05:20 PM
I am about to purchase a UK LTD Company which has a house in it, I have been told that I will not have to pay the 7% transfer fee, my solicitor who was dealing with the purchase prior to my finding out about purchasing a UK Co is not happy with this and says it is against the law and I may be liable in the future, please see part of his letter below:-
(3. - An added risk exists and that is in the case of a Tax Inspection the Spanish Tax Office could think that the structure that you have designed is no less than fraudulent in law to evade the payment of Taxes, thinking that the above mentioned structure is simply created to avoid the payment of the 3 % retention and 7 % of the Transmissions Tax. In this case, the seller would not have any problem, but our clients, would, since not only would they have to pay 7 % (plus interests on delays, sanctions, etc) but also the 3 % retention, as it is the buyer who is obliged to make this payment, and in case of not making payment of this amount, the person responsible is the buyer and the property remains affected by this payment, both the 7% and the 3 %. In addition to the aforementioned, in the case the tax inspection were to examine this matter, such tax inspection could consider the matter was actually tax fraud, which as a consequence could include the initiation of criminal action against the persons that intervened in such operation. Although it may not be very common, there is an existing possibility that it could happen.)
I don't want this to come back at me in years to come, I'm too old for all this already, who is right here, the Company setting up the UK Co or the Spanish solicitor?
Many thanks to someone who can rid me of this nightmare problem.

Lawbird Lawyer
09-28-2009, 12:08 PM
Dear Sir/Madam,

It is not technically against the law if you do this.

The question really is: is it worth all the trouble?

Please read our article on the matter:

Spanish Inheritance Tax: Advantages of Making a Will in Spain (http://www.marbella-lawyers.com/articles/showArticle/spanish-inheritance-tax-spain-iht) - 3rd of September 2009

There's an ongoing trend to abolish Spanish IHT , much like there was for Wealth tax which was abolished last year. IHT has been abolished/supressed by six regions in Spain already and more are to follow. This matter is being continously debated in Congress with continous petitions of IHT being abolished.

Having said that, on you passing away, your beneficiaries will be held liable for IHT both in Spain and in the UK.

Both the Spanish Tax Office and the HMRC are looking in to plug this legal loophole. Experts are already warning of the dire consequences if you get caught, your lawyer amongst them.

As explained in the above article, the most onerous cases relating to IHT exposure are regarding bequeathing large estates or else the beneficiaries being non-relatives or distant family members.

The beneficiaries of a property that is worth 500,000€ for example depending on:

1. where it's located in Spain (applicable regional laws)
2. who are the beneficiaries abd how much are they each inheriting (next of kin or else distant family or else friends)
3. their pre-existing wealth in Spain

can pay for Spanish IHT nil, 50,000€ or else 81.6% of the 500,000€.

So it really requires that a lawyer or tax advisor collates all the information, sits down and drafts a tailored tax report on your particular case. There are no general answers as there are multiple parameters that must be taken on board on calculating the exposure to this tax. On some regions your beneficiaries will not be held liable and in others they will have to pay Spanish IHT. Moreover even in the Spasnish regions where your beneficiaries are not liable for IHT they may still have to pay the HMRC's IHT.

Bottom line, the risk must correlate with the reward offsetting it amply. So if in your case, for example, the total tax liability of your beneficiaries is in total 20,000€ split onto 4 people does it make sense to avoid Spanish IHT setting up a UK Ltd company which may lead to a Criminal action in Spain being taken? This rarely happens albeit does happen.

If you own 3 million euros in assets in Spain it will certainly be worthwhile to retain a lawyer or tax expert to minimise IHT exposure. But if you have a property worth 400,000€ located in Valencia with 3 small children as beneficiaries it just doesn't make sense going through all the trouble. In fact, you will be throwing away good money after bad.

Yours faithfully,
Raymundo Larráin Nesbitt

09-28-2009, 10:27 PM
Thank you so much for your honesty, it has taken quite some time finding a sensible non biased person with an answer to my query.

The house is nearer the 350.000e mark and I was beginning to wonder who was telling me the truth, I am going with the Spanish lawyer who so very kindly gave me good advice, the old adage "if it looks too good to be true" came to mind!

Lawbird Lawyer
09-29-2009, 10:02 AM
You're welcome Sir/Madam.

Kind regards,
Raymundo Larraín Nesbitt