Passing ownership of your Spanish property to your inheritors has many complications and you must consider the implications on gift tax, transfer tax and capital gains tax in both the UK and Spain if you are thinking of using this strategy.
I was recently asked by a client who was purchasing a property in Spain whether he could place the property in his daughter’s name to safeguard against Spanish Inheritance Tax (IHT).
This is a suggestion I have come across many times, often given by Spanish lawyers and advisors as a method of avoiding paying Spanish IHT.
In reality this is a popular misconception masquerading as a solution. This strategy does not remove IHT in Spain, and it may leave your children with a tax bill to pay in the UK as well.
The reason behind the suggestion is based on the probability that the parent will pass away before the children.
If that does happen and the children are named on the deeds, they will not pay IHT because they own the property already.
They will however still need to probate on any balance retained by the parent.
The alternative scenarios are unfortunately not uncommon and are infinitely more problematic.
For example the asset could be at risk should there be a marital or financial issue with one of the co owners.
It is also possible that a son or daughter could predecease their parents meaning the parents would be at risk of losing control of part of the property depending on the Will or marital status of the deceased.
You must also consider the tax liability back in the UK.
As a British Citizen you are taxed on your estate worldwide.
If you, for example, purchase a property in Spain for €200,000 and you place it in your children’s name, then in effect you have given them €200,000 in cash to own the property.
Upon your death your administrators will have to declare to HMRC whether or not a gift has been made during the last 7 years.
Failure to disclose will be a criminal offence.
If you die within 7 years of making the gift then inheritance tax could be charged in the UK up to 40%.
Wincham Consultants offers owners or prospective buyers of Spanish property legal and Taxation advice to structure the ownership of their Spanish property into a UK Limited Company to significantly limit themselves and their Beneficiaries from Spanish inheritance tax liabilities and avoid acquiring an illegal or encumbered property. It is vitally important when dealing with any legal firm in Spain that you check that you are covered by at least 20 years title deed insurance.
There are many occasions where issues from the past may cause repercussions to your ownership or ability to sell.
Wincham Consultants provide 20 year Title Deed Insurance on any property transfer undertaken on behalf of clients subject to the T&Cs of the policy.
Once the property is owned by the UK Limited company, IHT in Spain is completely removed.
It is then advisable to have an up to date UK Will covering your worldwide assets.