This is the discussion thread for the article Spanish Inheritance Tax: Advantages of Making a Will in Spain
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A wonderful article. Very reassuring for me (and my children) as I fit into scenario 2. Indeed, I have three children, which makes even more room for no IHT if prices one day rise again.
There are too many so called experts, normally working as tax advisors, posting unfounded or incorrect information on the many forums I visit.
Dear Arnold. Thank you for your kind words. Unfortunately what you mention is true. There are a few expat forums on the web riddled with misleading "legal-gossip", which are nothing but perfect money making machines for their owners and the self-defined "experts" they recommend. You will not find in this site a single piece of advice which is not 100% in the best interest of the reader. We've been here for 10 years and we plan to stay for much longer.
You have correctly drawn your own conclusion, but for those still thinking of hiring one of these "specialised IHT Planning Advisors", I would recommend them to stay clear away.
I've just received a legal query from a widow on Spanish IHT.
She had not registered herself in Spain despite having lived here for years. Thus her IHT liability will be higher, much higher.
I copy and paste this article here because of its interest to the Ex-Pat Community
Foreign residents
Embassy encourages foreigners to register on local ‘padrón’
Benefits of registering include tax reductions, access to social care and discounts
26.08.09 -
The British Embassy is encouraging foreign residents to register on their municipal register by informing them of the numerous benefits this entails. While many British expatriates may not be aware of this, officially, all residents in Spain are required by law to register on the ‘padrón’. The embassy suspects that many people are reluctant to do so because they view it as a means of vigilance by the state. However, we are told that in reality, it is simply a way for local town halls to know how many people live in their area without entering into investigations as to a person’s official residence status or financial affairs. Residents do not have to own their own home to register on the census, they just have to have an address where they usually live. With regard to the actual registration process, this is straightforward and merely involves filling out a form. All information provided is confidential and protected by data protection laws. Citizens must take along identification such as a passport, NIE or residence card, and a recent utility bill in their name as well as the deeds to their house or a copy of their rental contract.
One of the advantages of registering on the local population census is that Central Government allocates money to the different municipalities according to how many people are on the ‘padrón’. Therefore, an area with more inhabitants is likely to have better public services with more money for the provision of health centres, police officers, fire fighters and schools.
Similarly, residents on the register are able to take advantage of certain income-related benefits and other aspects of social care available through town hall social services.
Administrative tasks such as registering for health care, enroling children at a school or registering a car with Spanish number plates is also much easier for people who are on the register. Also, depending on the town hall, registering on the ‘padrón’ could mean up to 50 per cent off Property Tax as well as reductions in certain community charges and inheritance tax. There are also discounts available on courses and leisure and cultural activities organised by the town hall. Registering on the census also enables residents to vote in both local and European elections.
For more information go to the British Embassy’s website: http://ukinspain.fco.gov.uk
This article should be printed and included in all English language newspapers in print in Spain at last once a year as it simplifies what almost nobody knows to the point that people who have no knowledge of Spanish laws can easily understand it.
Thank you for a fine article.
You're welcome Mr Red.
Kind regards,
Is it not that these exemptions are only for resident inheritors and do they carry time penalties if you sell the property soon after inheriting.
Also if I leave my property to say a UK company no tax is payable anyway.
Dear Sir or Madam,
Can you please be more specific with your legal query.
As the article itself states, Spanish Inheritance tax is a very complex and technical matter with multiple laws ruling on the matter depending on where the estate is located.
Each region is empowered to pass it's own laws besides the national legal framework which doesn't always apply to all regions.
Concretely to which of the 17 regions are you referring to in your query?
As per the article, there's a trend to abolish inheritance tax in Spain which is very unpopular. Much like there was for wealth tax which was finally abolished in January 2008.
In those regions where it has been completely supressed it's normally not residency that triggers not being liable to be taxed as you point out mistakenly, it's kinship. It suffices you being next-of-kin to take advantage, regardless of whether the beneficiary is resident or not in the region (or in Spain for that matter).
And yet in those other regions where IHT has still not been abolished which are the majority, such as in the case of AndalucÃ*a, you must indeed be resident in the region to take advantage of the regional tax allowances as you correctly point out. That is already highlighted in our article above.
That is why you must be more concrete on asking us, one cannot generalise with sweeping statements as the laws on inheritance in each region are so diverse i.e. the same family can be taxed for IHT in one region and yet not be taxed in a neigbouring region. It's only the laws that change, the case is identical.
Regarding setting up a UK Ltd company to waive IHT liability we have given our opinion many times over. As an example you have this thread:
UK limited company/IHT/transfer tax
Hallega
In our opinion the risk-reward must be attractive enough to warrant following this option as it's not risk-free. I've seen cases of owners of properties worth 250,000€ in Costa Blanca being misold a UK Ltd company when this owner had 4 children. Even if IHT hadn't been abolished in Valencia region, which is the case, his beneficiaries would still pay nil for Spanish IHT. As per the article which starts off this thread, the more beneficiaries the least IHT liability as the estate is spread out and the tax base is reduced accordingly as each beneficiary will benefit from individual tax allowances, both national and regional.
For large estates (i.e. > 800,000€) this option can indeed be very attractive, yes, as it's pointed out in the above article. Every case must be studied individually on its own merits. This UK Ltd option being offered to everyone en masse, as if all cases were identical, is seldom a good idea in our opinion.
Because this option may entail serious legal risks which are explained in the link above. New laws are being continously passed regarding holding companies owning assets in Spain such as on the matter of utility consumption to detect non-declared lets. They are continously crossrefferencing data to detect such fraudulent cases.
One cannot seriously entertain the idea nowadays that on holding a villa through a UK Ltd company there will be no tax liability whatsoever arising in Spain of any kind. It may have worked well in the past, granted, albeit will it work well in the future now that the Tax Office is taking a special interest in them post credit crunch? I beg to differ.
I know for a fact they are bent on plugging this hole closing in. The Spanish Tax Office wants its taxes and it will have its way, one way or another. Which is why the risk-reward ratio must be worthwhile making it not a suitable option for everyone to stomach. The underlying problem here is that The Spanish government is serioulsy in debt and the public deficit is evergrowing. Over the last years money wasn't an issue as the Tax office was collecting effortlessly massive amounts of money from property-related taxes albeit this is no longer the case with the downfall of the property market. Hence the need of the Tax Office to secure alternative sources of revenue to offset the budget deficit tapping in on niches that had previously remained unexploited, that is until now.
I would advice you to shop around for different legal opinions on this matter from registered Spanish lawyers before you commit yourself to this option. The option itself is not necessarily bad, it's just that it may not be appropriate for everyone which is why professional advice from Spanish experts, such as as a registered lawyer or tax advisor, should be sought.
Yours faithfully,
Raymundo LarraÃ*n Nesbitt
Thank you for a long response, but I do detect a slight frustration to this question.and you have not answered the question ,I have taken advice from Snr David Ivars in Benissa a Abagado and Snr Jaime Vives a Econamister in Calpe . They both confirm that a UK registered company does not pay Spanish IHT I just wanted final clarification to this they also confirm that a Spanish Will is not required as long as you have a UK Will that deals with your movable and immovable assets in Spain. Please just tell me if this is correct or not and by the way my wife and myself have a property in Valencia region and we are not residents but if we do leave our property in a UK Company then no IHT is payable in any region is that correct? Thank you for your time and answers
after rereading your response, I wonder how the Spanish government could tax a UK Company after signing the EU treaties that it has done especially if the company is registered ,operated and controlled from the UK and submitting to UK taxation. The Spanish government may wish to tax UK companies but I do not think they will break the treaties as this would have a reverse effect.The other benefit is that if you have 4 children they would all have to have NIE numbers and probate individually in Spain at a not insignificant cost.If the property is left to a Company they own then no Probate no NIE numbers and No Tax is that Correct? We also have the problem that a property in Spain is subject to UK IHT and added to the UK Estate as My Wife and I have assets in the UK at a value over £650,000 Then we would also pay 40% tax in the UK on the Spanish asset. I am told by my UK accountant that a UK Company may be able to shelter from some of this tax with careful planning.your respected reply will be gratefully received
Dear Sir or Madam,
You’re welcome. You make some very interesting points.
Judging from your reply I think you are however missing my point.
You say you own property in Valencia region. You keep insisting on the matter of UK Ltd companies when I’ve written an article and replied in detail to your last query explaining that IHT has been abolished in Valencia region for your next-of-kin. Unless you are thinking of bequeathing your Spanish estate to non-relatives. Is this your case?
There’s no point in you incorporating any company, Spanish or other, because there is no advantage to be gained in your particular case if you are leaving your Spanish estate to your 4 children (I take it you have 4 children, please correct me if I’m wrong). You haven’t mentioned how much is your Spanish property worth, which is key. However if it makes you feel safe overpaying and spending your hard-earned money in corporate structures you are free to do so, I will not deter you. From a tax mitigation point of view, which I believe is what should really interest you, it makes no sense unless your Spanish estate is significant. As for you mentioning other regions in Spain, you are only going to be taxed for IHT in Valencia, don’t worry, where your property is located. Only the laws in Valencia region apply to your case besides national laws.
The more beneficiaries you have the taxable base is reduced for each one as the estate is spread out.
I believe you are not asking me the write questions.
I would need to know the following to better advice you:
1. Who are the beneficiaries to your Spanish estate. Your 4 children? How old are they?
2. Do they have pre-existing wealth of their own in Spain?
3. Are they resident in Spain?
4. What’s the value of your Spanish estate?
5. Your estate is split 50/50 with your spouse I take it.
As for you mentioning Mr David Ivars, I have been forced to contact him on the past on the matter of exercising my Intellectual Property Rights. I’m sure he remembers me well. In any case what he’s advised you on a UK will is true and is exactly the same I write in my article above.
Moreover, I have a specific heading on the matter in my article:
Repeating again what I’ve written, and for clarity’s sake, a UK will is perfectly valid and legal to bequeath your Spanish estate. That, again, is not the point here. The point is being practical and saving your heirs money, hassle and time.Quote:
Isn’t a Will Drawn up in the U.K. or in Ireland Valid?
A UK or Irish will are perfectly valid to bequeath assets located in Spain. Having said this, many practical problems stem from this that could easily be overcome by means of having made a Spanish will
UK Probate will surely exceed one year attracting the surcharges (penalties) of the Spanish Tax Office besides being expensive. Every Spanish lawyer you ask will concur with me, it is advisable to draw two wills, one in your home country exclusive to your UK assets, and one in Spain exclusive to your Spanish assets. Both wills are compatible and do not exclude each other.
You also have the UK’s Foreign Office Department for Spain stating it’s fine to have two wills which is also in my article in case you missed the link:
http://ukinspain.fco.gov.uk/en/13821078/wills
That’s why I wrote the article to advice foreigners to make two wills because it’s in best interests of their beneficiaries to help them save money, time and hassle. I expanded this in six points. This is not a matter of opinion, this is plainly a fact.
If you have 4 children, all the 4 children do need a NIE number to inherit, correct. This can be organised in one week’s time through us, it’s no big deal. As for your comment on this being expensive, it’s only a couple of hundred euros at most.
If a property is held by a company of course there’s no need to do probate, it’s the company that owns the asset, not the individuals. Therefore there is no IHT to be paid in Spain, as it’s the company that owns directly the asset. Only the share ownerships needs re-arranging in the UK. This is also correct.
Regarding the HMRC taxing you on your Spanish estate, yes of course this can happen. One thing is what the Spanish Tax Office levies for IHT and a different matter is what you are liable to pay in the UK on inheriting a Spanish estate. It may well happen that you are not liable for IHT in Spain but you may be in the UK as the HMRC takes into account your UK estate besides the Spanish estate adding it all up.
That’s why careful planning is required and advice should be sought prior to buying property in Spain. As I write in the conclusion, it is very important to plan ahead to reduce IHT exposure where applicable, especially on large estates.
Regarding your comments on the Spanish Tax Office wanting to tax UK companies, it’s not like that. It’s that you cannot own a property through a UK Ltd company and seriously expect not to pay any Spanish taxes whatsoever waiving all fiscal liability. That is not serious.
Our laws state that if a holding company, such as a UK Ltd company, has as an only asset and activity a property located in Spain, taxes ought to be filed and paid here in Spain, regardless of where this holding company is registered and paying -or not paying- taxes. As it’s over understood its main base of operations is in Spain and not elsewhere (where the company is actually domiciled). Another matter is if the Spanish Authorities choose to pursue this loophole or not, that’s a different matter altogether. They certainly have the laws enabling them to press on the issue. It’s a very delicate matter bordering tax fraud which can give way to criminal action being taken against all those who conceived and planned the tax-avoiding structure. I really don’t feel comfortable discussing this issue in a public forum.
In any case many additional problems can arise which must also be considered. What happens if you want to sell the property later on? Many buyers will refuse buying a UK company (or any company for that matter); this reduces considerably your pool of prospective purchasers. What many buyers want to buy is the Spanish asset itself not some company shares. Winding it up may prove an onerous and lengthy procedure. What happens if you are in ill-health and need to raise the money urgently? What are the annual running costs of such a company? Do these running expenses offset in the long run the tax you are trying to waive? Who’s really in control of such a company?
The problem is that in most cases we will not know the replies until the person passes away which may be 20 or 30 years away from now.
Regarding UK laws I’m not qualified to give you advice. You ought to seek advice from UK experts such as lawyers or tax advisors. We only deal with Spanish laws.
Which is why I write again, that these companies are not necessarily bad, it’s just that it may not be appropriate for everyone. I believe it requires a careful case-by-case study and the risk-reward must warrant this option. That's why expert expert advice from a registered Spanish lawyer or Spanish tax advisor must be taken.
Yours faithfully,