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There are substantial tax advantages to be gained by owning Spanish property through a corporate structure. The benefits include avoidance of capital gains tax and inheritance tax, and savings on legal fees, transfer taxes and stamp duties. You may not be aware, but you could be hit for Death Taxes (IHT) twice in Spain. For more info,
Following the introduction of new Spanish legislation in 1991, property held in offshore jurisdictions blacklisted by Spain is now subject to a 3% annual tax based on the rateable value of the property. This tax was introduced to limit the tax advantages of offshore ownership.
However, the advantages of a corporate ownership structure can now still be obtained by having the property registered into the name of a Spanish company which in turn is held by an offshore company. With that structure in place the possibility exists to sell the property out of the Spanish company and pay a reduced capital gains tax of only 15% rather than the usual 35%. Or, the property can be transferred by selling the shares in the offshore holding company leaving title to the Spanish asset unchanged and therefore avoiding any taxable event occurring in Spain.
For lower value properties the substantial advantages of owning a Spanish property through a single corporate structure can still be a cost effective option, despite the 3% tax.
The main advantages of corporate ownership can be summarised as follows:
AVOIDANCE OF SPANISH INHERITANCE TAX - the rates of tax applicable vary between 7.65% and 34% depending on the relationship between the deceased and the recipient. Spanish inheritance tax is payable on the death of the owner of Spanish property irrespective of the tax residency of the owner. As a company never dies, a Spanish property owned by a company will not be subject to any charge to inheritance tax in Spain.
AVOIDANCE OF SPANISH CAPITAL GAINS TAX - Spanish capital gains tax is payable on the gain in value of the house when resale is effected in Spain and can be as high as 35% (around €87,500 for a €250,000 profit). This tax is payable irrespective of the tax residency of the owner. Liability to this tax can be avoided, as, by transferring the shares, a disposal of the property in Spain does not take place.
AVOIDANCE OF SPANISH WEALTH TAX – Spanish residents pay an annual wealth/patrimonio tax on the total value of their worldwide assets. Non Spanish residents pay this tax only on the value of their Spanish situated assets. The rate of tax varies between 0.2% and 2.5% depending on the total value of those assets. Corporations do not pay wealth tax so if a Spanish property is owned as we recommend then wealth tax will be avoided. The saving would generally be equal to the cost of running the corporate structure.
SAVING OF PURCHASE TAXES AND NOTARIAL FEES – Total purchase costs are typically around 10% of the value of the property. This includes: (i) registering the title deed – either transfer tax (ITP) at 6% or, if purchased direct from the developer, value added tax (IVA) at 7% plus stamp duty (AJD) at 0.5%; (ii) notary fees – 1.5%; (iii) legal fees – typically 1% of the purchase price.
EASE OF SALE – ‘Selling’ the property through the transfer of shares avoids the lengthy and protracted procedures that are necessary to register a fresh title in Spain. The sale and purchase can thus be effected much more quickly, easily and cheaply.
PRIVACY, CONFIDENTIALITY AND ASSET PROTECTION - It is relatively straightforward to hide the beneficial ownership of the property with subsequent advantages under the above headings.
PROPERTY FINANCE FACILITY - The shares of an offshore company can be used to secure a loan for the purchase of the property. Commonly, the shares are charged to the bank in return for a loan equal to a proportion of the value of the property.
The greatest tax advantage will result if a transfer of the Spanish property can be made by selling the shares of the offshore holding structure to the next buyer leaving the title to the Spanish property unchanged. This is a common way of achieving the sale or purchase of a Spanish property so is likely to be accepted by a potential buyer. However, on occasion clients express concern as to what happens if the potential buyer refuses to purchase the offshore structure and requires the property title to be transferred to his order instead. The answer is that even then, by utilising a Spanish company within the structure, substantial tax advantage can result. If a non-resident individual were to purchase property in Spain in his own name then on resale he would be subject to capital gains tax in the amount of 35%. A Spanish company would pay only 15% capital gains tax so there is an immediate 20% saving.
Which Offshore Company?
The jurisdiction in which to incorporate the offshore holding company will depend on the value of the property and the circumstances of the ultimate beneficial owner. We would be pleased to recommend the correct jurisdiction upon receipt of the relevant information. Please go to the |
