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What happens if someone cannot pay inheritence tax.
I have a friend who has remarried. She has two children (from 1st marriage) and her husband has two from his 1st marriage. They have a villa in joint names.
If her husband dies before her what happens to the property if his children(30 &32) are unable to pay the inheritence tax as they have no savings nor any way of getting any money.
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Some possibilities:
- Defered payment ( interests are accrued)
- Payment in instalments
- Ask for a loan or mortgage
- Sell the house...
- An the most risky one if none of the above is possible: just do not pay it and wait for the request of the taxman: it may be that by the time the State come to request it from you, the tax is non payable anymore ( 4 years). If it is payable, there will be a 10% overcharge.
This message was last edited by mariadecastro on 27/08/2009.
This message was last edited by mariadecastro on 27/08/2009.
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Maria L. de Castro, JD, MA
Lawyer
Director www.costaluzlawyers.es
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Thank you Mariadecastro,
She thought that if her husband's children had no way of paying (doubtful of getting loan etc) that the villa could not be sold for them to use their succession inheritance to pay for the tax for their share.
Although the villa is in joint names she has put in more money into the purchase than her 2nd husband and was worrying.
She thought tax had to be paid by them before property was sold and therefore cause problems.
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She thought that if her husband's children had no way of paying (doubtful of getting loan etc) that the villa could not be sold for them to use their succession inheritance to pay for the tax for their share. Well, she cannot sell if she is not paying but they can certainly sign a private purchase document (PPC) with a cancellation clause so that they can pay the tax with money of the deposit paid in the PPC and once the house is free of charges, proceed to the Notary deeds.
Although the villa is in joint names she has put in more money into the purchase than her 2nd husband and was worrying.
She thought tax had to be paid by them before property was sold and therefore cause problems. It has but it does not mean they can sign a preagreement ( PPC, option to purchase, precontract...) and after paying the tax with money obtained from this, proceed to the public deed before a Notary.
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Maria L. de Castro, JD, MA
Lawyer
Director www.costaluzlawyers.es
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Shudi, Not as straight forward as you thought from the first reply!
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Hello Sunjoy,
When I purchased in Spain I did a lot of research before I purchased and the only way I have truly found to remove the terrible problem of Spanish Inheritance Tax in Spain was to own the property in a UK Limited Company structure. If you own a property in your own name in Spain then the Beneficiaries have to pay the Taxes within 6 months of death of an owner or fines are imposed by the Spanish Government, and if you do nothing then the property and bank accounts of the deceased may become frozen in Spain so nobody else can do anything with the assets, you are unable to use any money in the bank accounts to pay the Taxes either. By owning a property in Spain in a UK Company you do not own a property directly which is Taxable in Spain, but instead you own a UK Company which does not pay Tax in Spain that owns the property, and when the Company is left in a UK Will in a lot of cases it is received Tax Free in the UK by the Beneficiaries, this is definitely the case in a Husband and Wife situation.
If you would like my Consultants details who have offices in the UK and Spain then please let me know and I will send you a private message, My Consultants website will also let you apply for a free Spanish Inheritance Tax illustration so you can view the current Tax position in Spain of your friend.
This message was last edited by Property On Finca Parcs on 13/09/2009.
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Kind Regards,
Westholme Corporate Developments Limited,
www.wcdltd.com
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Is there a problem transferring an existing owned property into a UK Limited company, or should this be done at the time of purchase?
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Hello Fultond,
If you are purchasing a New Build then you can purchase the property in a UK Company and all is dealt with from the start, but if you are purchasing a resale then you can save the 7% Transfer Tax as it is the Company you purchase that owns the property appose to the property its self. There is a method of moving the ownership from the Seller into the Company which you would then buy. Should you already own a property in your own name then there is a simple transaction to move the ownership out of your name into the Company which you own.
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Kind Regards,
Westholme Corporate Developments Limited,
www.wcdltd.com
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How is the 7% avoided? Presumably the company you set up is liable for this amount?
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Hello Fultond,
You setup the Seller as the owner of the UK Company and when everyone attends the Notary in Spain the property is Gifted into the UK Company and is exempt of the National 7% Transfer Tax in Spain, there is still a 1% Regional Tax on the investment value but no Capital Gains Tax is incurred in Spain. The Company is then sold along with the property and as no property is sold directlty in Spain no 7% is payable. And Spanish Inheritance Tax and other Taxes are not paid in Spain as the UK Company only pays Taxes in the UK under EU Directive.
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Kind Regards,
Westholme Corporate Developments Limited,
www.wcdltd.com
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Thanks for this really useful information. I will pursue this in the future.
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