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WAYS TO REDUCE SPANISH INHERITANCE TAX

WAYS TO REDUCE SPANISH INHERITANCE TAX 1024 1024 TLA

In order to explain the different ways to avoid or reduce Spanish Inheritance Tax, we will use an example:

–       A+B, British and Spanish residents own a Spanish property.  They have 62 years old. They have 2 sons. Sons are not Spanish residents.

–       Both have made a “mirror Will” (A leaves everything to B, and vice versa), and when both die leave everything 50 % to both Sons.

Unfortunately, we cannot give you too many options to reduce Inheritance tax to the  Sons. But,  pay attention to the fact that  there are determinate offers in the market to avoid or reduce Spanish IHT. Please, do not believe in all of them!.

Before you decide to go you should consider the following analyzing  some of the options offered in the market by some companies:

1.- Passing the Usufruct to your inheritors while you are living:

It means, that A+B must pass the “nude” ownership of their property to their Sons, while A+B keep the use of the property for the rest of their lives.

Problem: A+B have to pay notary, land registry fees, and 8-10 % Transfer Tax of the nude property. Usually, the Usufructo can be an average of 30 % of the total value of the property.

So, being the example used for 300.000 EUR, A+B could pass 210.000 EUR to their sons, and then pay for it the following:

–      10% Transfer Tax: 210.000 *10% =21.000  EUR

–       Notary + land registry =1.200 EUR (approx.)

–       3 % Capital Gains (if A+B were no Spanish Fiscal Resident): 6.300 EUR

–       Plusvalía : Depend on the area and the type of the property: +- 1.000 EUR.

Then, when A+B pass away,  sons would receive the remaining 90.000 EUR. So, 45.000 EUR each.

–       Son 1 = 40.000- 100.000 EUR (Exemption in Valencia Region) = 0 EUR. So, following the IHT scale, Son 1 does not pay Inheritance Tax.

–       Son 2 = 40.000- 16.000 EUR (Exemption in Valencia Region) = 0 EUR. So, following the IHT scale, Son 1 does not pay Inheritance Tax.

2.- To create a Spanish company: 

To create a Spanish company just to reduce Spanish IHT has been considered as an illegal practice by the Spanish administration, and treated as «Tax fraud» and «Tax evasion».

3.- To create an off-shore company or trust, and transfer the property to the off-shore company:

To create a Spanish company just to reduce Spanish IHT has been considered as an illegal practice by the Spanish administration, and treated as «Tax fraud» and «Tax evasion».

4.- To create a UK company and transfer the property to the UK company:

To create a Spanish company just to reduce Spanish IHT has been considered as an illegal practice by the Spanish administration, and treated as «Tax fraud» and «Tax evasion».

5.- To create a mortgage on the property to reduce expenses: We personally do not recommend A+B to lose their time in this option, because:

–       Banks will not be happy to mortgage a property now (crisis time) when the debtor is over 50-60 years old.

–       This mortgage is risky so, conditions, commissions, and interest rates will be higher than the normal.

–       The bank will never give you the full amount of the value of the property.

–       The mortgage use to be required to be re-paid fully at the time of the death by your inheritors.

IMPORTANT NOTE: On 14/1172013, it was considered by the CENTRAL OFFICE TAX IN MADRID, that to create a company just with the aim to avoid IHT it is considered as ILLEGAL, and FRAUD, and may create criminal and negative consecquences,  to the ones that organize or participate in these kind of strategies. Obviously, this does not affect to current existing companies with determinate activity in bussiness, or those create with a different purpose than to just avoid Spanish taxes.

So, TLACORP expressly do not recommend to any of our clients to CREATE a company, wiht no other activity different than to avoid to pay taxes in Spain.