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The Daily Mail recently published adverts in its Friday papers from a company, based in Lanzarote, who claim that through them you can buy a property without paying the sales tax. This is completely false and is a pure scam that has claimed many victims so if you saw the advert and was tempted or know of anyone else then be warned.
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There is a legal way to achieve buying a resale property without paying the 7% purchase tax and that is that the seller invests the property into a UK Limited Company ,no 7% tax and then sells the UK Company to the buyer ,who then has all the advantages of corporate ownership and does not then have to pay any Spanish taxes or IHT in the event of death . The buyer can also sell the Company in the future with no Spanish taxes at all. You can of course claim tax relief on all expenses including travel and car hire ,and all Spanish overheads attributable to the property,no 25% tax for rental and no wealth tax. you can claim tax relief on the mortgage interest through the company . 
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Malcolm D Roach MICM
Consultant in Company ownership of Spanish Propert...
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Hello,
I have purchased on Finca Parc near Murcia and was advised by my Agent as how to combat Spanish Inheritance Tax. They informed me that if I buy the property in a UK Limited Company and not my own name, I could leave the shares of the Company, which I own instead of the property to my Heirs & Beneficiaries.
I followed their advice and have now also produced a UK will, which instructs to leave my shares of the Company to members of my family. This means that when I pass away NO Spanish Inheritance tax will have to be paid by them, as they will inherit a UK Limited Company that owns the property, and not the property its self. Therefore Spanish Inheritance Tax is irrelevant and completely removed, (FANTASTIC)
Also if I wish to sell the property, I will not have to pay any 3% Witholding Tax which none Spanish Domiciled People have to pay when they sell the property on, Secondly anyone who wishes to purchase the property from me do not have to pay the 7% Transfer Tax. This is because when I sell, I will not be selling a property, but will sell the UK Limited Company which owns the property, so no Taxes are payable to the Spanish Government. (GENIUS)
My Agent who is also a Corporate Property Ownership Consultant can assist anyone who wishes to purchase in a UK Limited Company appose to their own names.
This message was last edited by Property On Finca Parcs on 4/30/2008.
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Kind Regards,
Westholme Corporate Developments Limited,
www.wcdltd.com
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This sounds good and has been available for a long time
Problem is that you have to file accounts in UK and you also have ' benefits in kind......if you or your family use the property you either have to pay a commercial rent or be taxed on the benefit you get from that use
Now you may say that ' you can get away with little use' but Revenue and Customs will take a view that you use it a lot and leave it up to you to prove otherwise
With accountants fees for accounts and agreeing benefit in kind with Revenue & Customs it may make the running cost of the average UK buyers property ' quite expensive'
If you have 100% control of the company you will be liable for circa 100% of its value for UK IT...as it is your company's only asset
Now it is with good UK advice a way of limiting your IT in UK but tread with care and IT in Spain may well be changed as there is a movement towards all EU having similar taxes
I am not saying that it is not a good way to buy in Spain but it is not as simple as your Post!
Also if you are tax resident in UK then 'I think' that any IT you pay in Spain is offset against your liability in UK
If you want to sell the property many people will not buy the company ....it really does get very complicated
But worth looking at !
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RowlandSBB
To answer your posts -
1. On the 6th April 2008 the Chancellor abolished Benefit in Kind Tax for Directors of Property Owning Companies.
2. With regard to the costs of running a UK company there are 2 things you will need to do
a. Provide a Registered Office for the company in the UK. File the Annual Return for the company and pay a £15 filing fee. This service can be provided by Company Formation Agents at an inclusive price of £200
b. You are required to file an annual set of Accounts for the company with Companies House and HRMC. This can be dealt with for a cost of £100 for a non-trading company and £300 for a trading company. The benefit of a trading company is that you can claim Tax Relief on the attributable expenses for the business. This can include Community Fees, Water, Electricity, Suma, repairs and possible flights and car hire for the Directors. There is a saving to be made to offset these costs as no Wealth Tax is payable by the Company and as the owner of the company has no assets in Spain there is no necessity for the owner to file Tax Returns in Spain. The company will file Tax Returns in Spain with zero liability. The filing of this return on Spain would be approximately 60€.
3. With regard to Inheritance Tax, if you personally own property in Spain, all inheritors would be required to probate the Estate individually and pay the IHT based on their individual Inheritance Tax. This must be paid prior to any transfer of the asset. All assets are frozen; include personal and joint bank accounts, until probate has been completed. The assets cannot be mortgaged to pay these taxes. If the property were to be invested in a UK Limited company there would be no taxes or Probate in Spain. It is much easier to deal within a UK will with the shares of the company which are exempt from UK inheritance tax if the company is classed as a trading company. There are simple rules laid down by HMRC with which you would be required to comply. It should be noted that if the property is personally owned that there may be further IHT tax to pay in the UK depending on the size of the overall Estate. With ownership in a Corporate structure the shares can be transferred exempt of tax and the Directors Loan Accounts in the company could be gifted to the beneficiaries prior to death. This is quite simple to do and only required a letter to be produced stating that the Loan Accounts in the company should be gifted to the nominated beneficiaries and this can be lodged with the owners Will. The recipients do not even need to know that this has been done. The result is that as long as the owner lives 7 years then the Loan Account will be outside of the Estate for tax purposes.
4. If you wish to sell the property, Corporate ownership gives you 2 options. Option one is that you sell the property from the company in the normal way, 3% Withholding Tax will be deducted from the sale proceeds. The balance of the proceeds will now be held in the company and you are able to withdraw your Directors Loan Account, this will include all the loans that you have made to the company to finance the costs of running the property. Option 2 allows for you to sell the company, this is the most cost effective and simple process for all parties. It is achieved by the preparation of a Warranted Sale & Purchase Agreement. This can be prepared by a UK Lawyer, Accountant or Corporate Property Consultant. A small cost of 600€ would be payable to a Spanish Lawyer to check the Title and for any encumbrances on the property. The vendor would be required to provide a professionally prepared and warranted Balance Sheet for the company. The payment by the purchase for the shares and the Loan Account can be made either in the UK or Spain and the transfer of ownership is quick and simple with nothing to do in Spain. From a Tax point of view the purchaser will not be required to pay the 7% Transfer Tax or the 1% Land Registry Fee and the legal costs will be limited to those stated previously. The vendor would not be required to pay the 3% Withholding Tax or the 18% CGT in Spain but would only be required to pay the 9% CGT levied by the UK HMRC on the sale of shares of a UK trading private Limited company up to £1,000,000 gain.
5. It is not understood by most Brits that apart from paying taxes in Spain that they must also declare to HMRC any profits that may be made on their World Wide assets and even though taxes may have been paid in Spain that further taxes may still need to be paid in the UK. As many Brits have suffered appalling advice from Spanish Estate Agents who have recommended that they pay for a property using what is called ‘Black Money’ this method is not only illegal but can also create a significant CGT liability back in the UK when the property is sold as there can be an inflated profit generated which will be taxable. Using a corporate method for acquisition, operation and sale effectively eliminates all Spanish Taxes and can provide the lowest taxation liabilities in the UK.
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Malcolm D Roach MICM
Consultant in Company ownership of Spanish Propert...
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Ok Malcolm, that's a really good posting. But, if one already personally owns a property in Spain, is it possible, or economical it to put it into a UK Ltd company and if so, what would be the costs and how would one proceed?
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If you own a property in Spain you can invest the property into a UK Limited Company , this is done by forming a company ,translating all the documents into Spanish having them notorised and apostiled in the UK . Then through a Spanish Gestor having the property invested into the company .The Directors of the company must be the same as the owners of the property. the cost of the whole transaction if you engage a consultant to do the work for you is £5000 all inclusive.This fee includes Company formation costs ,Translation and notary costs in the UK all legal fees in Spain including Notary fees,Gestor fees,POA, IVA and Vat ,Registerd office and Company Secretery costs for 1 yr . The only other cost is the land registry fee of 1% of the registration value and maybe some Plus Valia tax, no 7% is required for this transaction. Once done no taxes in Spain no Wealth tax ,no ISD , and all the benefits of UK taxes only. The rules of the forum do not allow me to promote my Business except through advertising ,this we are trying to organise,but I will send you a private message with the information you have requested.
The savings for the future will be great ,It should be remembered that there is no Double taxation treaty in respect of Spanish ISD as it is the recipient that is taxed in Spain not the Estate and in the UK it is the Estate that is taxed not the recipient so no reduction of UK IHT and you must pay Spanish ISD ,the Corporate ownership soloution overcomes the problem as no taxes in Spain will be due
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Malcolm D Roach MICM
Consultant in Company ownership of Spanish Propert...
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On the 6th April 2008 benefits in kind for directors or shareholders of property companies was abolished?
Talking to UK accountant at lunch today and he was noit aware of this!....perhaps not up to date but it does go against the general policy of UK Revenue & Customs...that you can use as much as you want a holiday home owned by a property company and not pay any tax for personal use!
Can you state the para of the Finance Bill or the Revenue Note
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Rowlandsbb
You are right, many professionals find it difficult to keep up with legislation in their own countries without understanding cross border as well; this makes it frustrating for property owners to get constructive advice on property ownership.
What tends to happen is that a negative approach is taken by any professional who does not understand the whole picture.
In fact in Spain it is unlikely that an adviser will tell you to follow a method that means he will get no more work such as wills, probate, purchases and sales .
Many people just take the advice of sales agent who have no professional knowledge and only have the interest in how much commission is to be made and how fast can it be done.
To answer your question regarding the legislation in respect of benefit in kind tax the following link displays this on the HMRC website ,unfortunately I could not use a hyperlink as I have not made enough posts yet !
Budget Note 50 was the first place it was announced in Budget 2007:
Visit hmrc.gov.uk/budget2007/bn50.htm
Then it can be found in the explanatory notes to the Finance Bill 2008 clause 42 page 470 of the explanatory notes.
Subsection (1) of clause 42 provides for the amendment of the ITEPA 2003 by insertion of new section 100A after 100
The explanatory notes which detail in layman’s terms (ish!) all of the amendments are the best reference point and these can be found
hm-treasury.gov.uk/consultations_and_legislation/financebill2008/financebill_index2008.cfm
Click on explanatory notes and the information you need is on page 470 to 474 inclusive.
So to summarise:
The draft amendment was announced in the budget 2007
The actual amendment was made as part of the budget 2008 and published in the Finance Bill 2008 on 27th March (the Finance Bill 2008 is still as the Commons Committee stage debate and will not receive royal ascent i.e. become law for a little while)
The Finance Bill proposes the necessary amendments to the ITEPA 2003 (Income Tax (Earnings & Pensions) Act 2003) with the inclusion of a new section 100A.
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Malcolm D Roach MICM
Consultant in Company ownership of Spanish Propert...
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All the replies to this thread and proves that there are legitimate ways of saving taxes. Unfortunately the company that i was referring to which is based in Lanzarote is run by a convicted serial fraudster. They charge you 6 to 7 thousand euros for setting up the company, take a further 3000 for the companies capital which is meant to be refunded. The end result is that you get left paying the sales tax, in my case 11700 euros worth, and never getting the 3000 euros refundable capital back.
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Interesting and it is certain a route to be considered after the legislation details are available later this year
Of course the costs have to be considered and there is a prospect that in Spain the IH tax rules which apply to the Spanish may also apply in due course to non resident owners....in a similar way to the changes last year in Capital Gains Tax
There is a lot of talk at present about big changes in IH tax in Spain but for the time being it is certainly going to be a real option
And your post will certainly bring this to the attention of buyers for their benefit
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lovelle
Sorry to hear of your misfortune ,I understand that they advised a Spanish Company ,that would be of little use anyway as you would still be liable to Spanish taxes . Did you get your property or Society registered, was your property in Spain Mainland or Lanzarote
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Malcolm D Roach MICM
Consultant in Company ownership of Spanish Propert...
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Yes my property is registered in the name of the company they set up, a Spanish Patrimonio Famaiiar S.L. which is owned by a UK LLP. I have copes of the company escritura and those of the purchase, though my own name does not appear anywhere.
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Can I recommend that you transfer the shares held by the UK Limited Liability Partnership to yourself or is there a reason you should not ,I would not be happy with another entity not owned or controlled by myself owning the property ,one does not need to be covert to be tax efficient
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Malcolm D Roach MICM
Consultant in Company ownership of Spanish Propert...
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Good idea Malcolm. Unfortunately i do not have any details on my company apart from it's name and the fact that the UK Taxman keeps on sending letters to myself and my wife saying that we should be providing them with accounts. At least the Inland Revenues interest confirms that myself and my wife do own at least part of this LLP though i do not know how much of it?
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Smiley
I don't understand the problem. If you wish to sell the Property from the Company then the purchaser will finance the property in the traditional way
If you wish to sell the Company then the Company could mortgage the property to a lender and the finance raised would be used to repay the Shareholders Loan and the balance financed by the purchaser. This is no different than buying in your own name except now the company can claim UK tax relief on the interest.
Example 1 Property Cost 300000€ Deposit 35% = 105000€ Mortgage 65% = 195000€
Example 2 Shares 50000€ Shareholders Loan 250000€ valuation 300000€
Bank borrowing @ 65% 195000€ New Shareholder 50000€ for Shares 55000€ New Shareholders Loan.
The above shows that there is no difference. You would not finance the shares but the property
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Malcolm D Roach MICM
Consultant in Company ownership of Spanish Propert...
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IN Spain it is considered illegal to borrow money to buy shares (I believe also in the UK as it is "speculation"). There is not a lender here that will do it. there are a couple of offshore lenders that will look at it but only under certain conditions. Thus any person wishing to purchase a company whether it be a UK Ltd company or a Spanish SL has to either have cash or use one of the offshore lenders willing to consider these proposals. We managed to get away with it with a couple of lenders until mid 2006 but since then they will no longer do it. The fact that the structure you are setting up is a UK Ltd company would make it even more difficult in my opinion but thats only my view (without the offshore lenders of course). Doesnt matter if the sole asset of the company is the property itself - they are not permitted to do it.
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Smiley - patrick@marbellamortgages.com www.marbellamortgages.com www.comparetravelcash.co.uk
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We have no problem getting Spanish Bank mortgages for property owned by UK Companies ,Soon we will have UK Banks lending as well, Its one of the things we arrange.and as I said its the property that is mortgaged ,whoever owns it ,not the shares,why would you want to finance the shares.
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Malcolm D Roach MICM
Consultant in Company ownership of Spanish Propert...
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