Spanish Income Tax on rental income for non residents

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07 Mar 2010 11:16 AM by Norm de Plume Star rating in North Tenerife and L.... 162 posts Send private message

As a result of my complaints to Brussels the rules are  baing changed to enable non-residents to offset legitimate expenses agasinst deemed income.  The legislation has been passed by the Senado and is currently before the Congreso.  Details should be available soon.  I have also complained about discrimnination in inheritance taxes, which is currently being looked into.  All we want is a level playing field





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07 Mar 2010 4:18 PM by Property On Finca Parcs Star rating in UK & Spain. 29 posts Send private message

 

Dear heffin,
 
There is no point in moving a property in Spain into a Spanish SL Company because you then leave the shares and assets of the Company to your Beneficiaries and Spanish Inheritance Tax still has to be paid on your death. The whole point in moving the ownership into a UK Limited Company is so you do not directly own the property anymore but you own the shares and assets of the UK Company instead and under the EU Treaties which Spain and the UK have to follow then no Inheritance Tax or annual Taxation has to be paid in Spain.
 
If you own the property in a UK Company and you have a buyer for your property then you can still sell the property out of the Company to the buyer or you can sell them the Company which means they do not have to pay the 7% Transfer Tax and you will not have to pay the 3% Withholding Tax. This could be a big advantage to the marketing of the property especially if next doors property is up for sale at the same price. It is also important to be aware that Spain has increased Capital Gains Tax in Spain from 18% to 19% on the 01/01/10 for any profit made on the sale of a property but if you sell the Company and have any profit then this transaction is Taxed back in the UK at only 18% CGT less any allowances the sellers may have.
 
If you would like the contact details of my Consultant who can move your property into a UK Company structure then please let me know as they only charge £5000 and not £7000 which you have been quoted and finance is available if anyone requires it for this amount. I also believe they have a separate website which markets properties in Spain owned by UK Limited Companies so this may be useful as well.


 



This message was last edited by Property On Finca Parcs on 08/03/2010.

_______________________
Kind Regards, Westholme Corporate Developments Limited, www.wcdltd.com



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25 May 2011 2:18 PM by Kibsta Star rating. 1 posts Send private message

 

Hi All

I am new to this forum but joined because like everyone else I feel like a cash cow for the spanish government just because I have a second property in Spain.

I am interested in the idea of transfering my property to a UK private limited company. I have two questions:

If the property initialy runs at a loss can I recoupe any money I have to put into the company in the early years later on without paying tax on it ?

I have an existing UK PLC can I transfer the property into that thereby offsetting my existing corperation tax liabilities against the property, i.e. the mortgages and bills will be payed by the UK PLC prior to me taking a dividend ?

HELP !

Property on Finca Parks : I will send you a PM for your agents details





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25 May 2011 6:19 PM by Property On Finca Parcs Star rating in UK & Spain. 29 posts Send private message

Hello Kibsta,

Once the property is invested into your UK Limited Company then you will fund the Company Directors loans to meet its running expenses. You are then able to withdraw those loans on sale of the Company Tax free or by cashing in the shares of the Company from future Company/Property income.

My Consultant will be able to help you move your property into a newly formed UK Limited Company or one that is already established but they will help you directly with the technicalities so I have sent a PM reply to you as requested with their contact details.



_______________________
Kind Regards, Westholme Corporate Developments Limited, www.wcdltd.com



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25 May 2011 6:29 PM by Faro Star rating in London. 1139 posts Send private message

I hope this is not a Wincham scheme you are proposing?





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26 May 2011 12:00 PM by Property On Finca Parcs Star rating in UK & Spain. 29 posts Send private message

Hello Faro,

Why do you ask?



_______________________
Kind Regards, Westholme Corporate Developments Limited, www.wcdltd.com



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21 Mar 2012 2:44 PM by catweazle Star rating. 1 posts Send private message

What is the Wincham Scheme?

The Wincham Inheritance Tax Protection Strategy is a scheme offered by Wincham Investments Limited, a UK company, designed to ‘remove’ or ‘sidestep’ Spanish succession tax on the death of UK resident owners of Spanish property. If only life was so easy: they only tell you half the story.

How does it purport to work?

Under their scheme, you place the Spanish property into a UK limited company.

Wincham claim that simply acquiring or transferring an existing Spanish property into a UK company will automatically circumvent Spanish succession tax for UK residents. This half of the story is true.

Why doesn’t it work?

Firstly, it takes no account of UK inheritance tax. This will be payable on the shares as UK limited company shares are always subject to UK inheritance tax. Arguments that business property relief will apply to exempt the shares from this tax are muddle headed: this relief only applies to real trading companies, not a single property investment company.

Example:

An elderly widowed individual with a total worldwide estate of around £1 million, including a Spanish property worth around €300,000, and two children, who will inherit equally on their death, the Spanish succession tax on the property would be around €36,000 in total (about €18,500 per child), with a top rate of tax in Spain of 18.7%. However, the UK inheritance tax on the same property would be around £104,350 (assuming an exchange rate of £1 to €1.15). This is clearly a much higher tax bill.

Therefore, even if you manage to avoid Spanish succession tax on an inheritance, you may not avoid UK inheritance tax, and if this is higher than the Spanish tax would have been, you have gained nothing, but spent money on the scheme.


Secondly, the scheme fails to emphasise the potential problems of capital gains tax when transferring an existing property in. If you have an existing Spanish property that you want to put into a company, you will be making a disposal of that property for capital gains tax purposes in both Spain and the UK (for a UK tax resident). If the value of the property has increased, you’ll be liable to tax even though you have only transferred it into a company. If there’s no gain in euro terms, there might still be a taxable gain in UK sterling terms payable to the UK tax man for UK residents. Even worse – you haven’t actually sold the property, so will have to find the money for the tax bill out of your own pocket.

Thirdly, when you eventually sell the property (it’s highly unlikely that you’ll find a buyer for the shares: most buyers want the property only) the company will be liable to Spanish and UK corporation taxes, and then the gain (after paying tax) is liable to further tax as a dividend if you extract the money from the company! You’ll end up paying far more than if you had left it in your own name.


Fourthly, putting the property into an existing limited company has all sorts of other problems including generating benefit in kind tax charges in the UK and losing business property relief for an otherwise trading company. You might also end up increasing the rate at which the company’s profits are taxed.


Fifthly, Whilst there have been claims that transfer tax (7% on property) could be avoided by using a company to own the property (because when sold it is the shares that change hands, not the real estate itself), there are anti-avoidance provisions in Spanish law to prevent this, and so this anticipated saving may not arise either.

Sixthly, many people wish to buy a property now for an ultimate retirement to Spain. This scheme could cost those people capital gains tax exemptions on that property if they ever move into it to live there.


Finally, Wincham claim that any rental income generated by the property is taxed solely in the UK. This is not correct – the Double Tax Treaty between the two countries which governs what is taxed where (not EU directives, as Wincham claim) state clearly that even in the hands of a company, rental income is primarily taxed in the country where the property is located, and also in the country of residence of the owner. Whilst the Spanish tax can be offset against the UK tax so that you are not taxed twice, this still means that the higher liability is due wherever it arises, plus you will have two sets of annual accounting costs.


Conclusion

Don’t put your Spanish property into a limited company. You generate costs and tax liabilities for no real gain. In any case, when you work out the numbers, the amount of tax being saved isn’t nearly as much as you might believe."

Source: costa action group
 





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22 Mar 2012 9:34 AM by norm de plume Star rating in North Tenerife and L.... 162 posts Send private message

If the Spanish Government gave us a level playing field, as now looks likely at some stage with the reform of inheritance tax, there would be no need for schemes such as the Wincham Scheme.





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22 Mar 2012 10:05 AM by growler Star rating in Birmingham & Benejúz.... 164 posts Send private message

Hi Catweazel, given that in this weeks budget Mr Osbourne has closed the tax loophole for people buying UK props via offshore companies, how do Wincham Investments see this affecting the spanish 'sidestep' strategy you've described?

< edited > ...apologies catweazel, I'd only read the beginning of your post!!!.. doh


 



This message was last edited by growler on 22/03/2012.

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Kind Regards..Pat



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