Make huge savings buying property in Spain

The easiest and cheapest way to purchase property in Spain is to first, set up a UK limited company. By doing this, you only have to pay 1% land registration on top of the purchase price. You avoid the 7% transfer tax, and in the future you avoid all personal Spanish taxes, because you are a UK company. There are other benefits as well. You can avoid inheritance tax, should someone pass away, and you don't have to pay the 3% holding tax when you come to sell either.

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Dear Stalbot:

I agree with you regarding all below but if your buyer wants to have the property under his personal/individual name ( let´s say a non UK buyer), he/she will have to pay 7% transfer tax on the property tax regardless the legal form of the buyer.

Best,

Maria

 

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Hi Maria, i was just wondering why the individual would want to purchase under his personal/individual name? thanks

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If they are spaniards, they might not want to own a company in the UK ... I would say.

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Spainiards wouldn't benefit, because they aren't UK domiciled therefore they would be liable to pay all the normal spanish taxes anyway ?

Is this the case Maria ?

This message was last edited by STalbot on 4/7/2008.

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What is the case?

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I don't understand how you can avoid paying the 7% transfer tax just by buying in the name of a company rather than an individual? And the 3% "holding tax" referred to is in lieu of capital gains tax, and applies to non-residents. Surely a non- Spanish company would be regarded as a non-resident entity? Either way, would a company not be liable for capital gains just as an individual would?

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I am trying to have my taxes people answering these questions for you.... they are getting in excellent shape. My apologies for that. Some training is needed....!!!!

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For trading UK company, Capital Gains Tax is 9% not 18%. The 3% holding tax is for the Spanish Government, where as a UK company is liable for taxation by the UK government only, at a rate of 9%.

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Aml 400:

Yes, that all is correct. Again the only obstacle I see to that is if the future buyer of your house ( invested in a UK company) is not a UK resident. It might be he/she will not feel comfortable with buying the shares of a UK company. For all the rest, I do think it is a great idea.

Best wishes,

Maria

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I think this is very interesting. My main concern would the tax aspect whilst living in the property. It seems to me that the Shareholder/Director would either pay rent to the company owning the house or be paid for his services in looking after the property, or a combination of both. Regardless of whether nor not money is transferred, I would think the Spanish tax authorities would assess this and charge income tax to the tenant or the company, or both. Simply being a foreign company would not absolve it from being taxed on Spanish income.
I have no personal experience of the Spanish tax bodies so can offer indication regarding their diligence, perhaps someone else does?

As an aside to this, I note that many are now recommending renting property rather than buying it when moving to Spain, and I feel this introduces another little tax problem. If you rent a flat for say €12000pa then automatically, your income must be significantly more than €12000. So, up goes the tax bill.Unless you can prove otherwise, with interest rates at say, 4%, this also means you must have capital of at least €300,000 and so the Wealth Tax come into play. I don't live in Spain but I woudl be interested to hear from anyone who has dealt with these problems.

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There are ZERO personal Spanish taxes to pay in this scenario. The directors of the company would be yourself or a close relative, you would own the company which owns the house.

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I have my doubts that you are correct that the tax would be nil. The company is a separate legal person from the shareholders and directors. If the rental agreement between them is not arm's length, then I suspect the tax office would make their own assessment.
Does anyone have experience of that tax aspect of living in a property owned by a company which they own?

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The property that I live in while in Spain is owned by my UK limited company.

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aml400: I understand perfectly that transferring shares in a UK company from one person to another does not come under the jurisdiction of the Spanish tax authorities, and as such inheritance tax and possibly transfer tax can be avoided in the future - although as Maria has rightly pointed out, this depends entirely on you finding a buyer (in the event that you wish to sell rather than leave the property to someone when you die) who is happy to buy a UK company. This could seriously limit your potential market.

STalbot: I still don't see how this scenario avoids paying transfer tax at 7% when you buy the property in the first place.

This message was last edited by Roberto on 4/8/2008.

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Wouldn't one of the main issues be if a potential purchaser had to finance the purchase?  Or are there banks/organisations geared up to finance the purchase of a company, rather than the mortgage of a property?

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Hi Roberto,

Good to hear from you. The main issue is finding consistent and accurate advice. The Spanish tax systems is said to be even more complicated than the UK system. In the past I have found my UK lawyers unable to advice me on Spanish purchase, sale and inheritance taxes as it is out of their jurisdiction, and equally, my Spanish lawyers are unfamiliar with UK company legislation and unable to offer advice which isn’t in their OWN best interests. To answer your question, its only through a lack of understanding that a subsequent purchaser would wish to purchase a property in their own name rather than a UK limited company, given the sale and purchase tax advantages, the simplification of inheritance tax issues and being able to deal with the asset in our native tongue with experts who operate at the highest of standards. Hope this helps!

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"being able to deal with the asset in our native tongue"

With respect, you are still missing the point that both I and Maria have made, that is, if you're buyer is British, OK, but if not.......? Do not forget we are in Spain, and contrary to popular belief, the biggest group of property buyers are............Spanish!

I would love to be able to take advantage of the benefits you have outlined, but I think the chances of explaining the method to a Spanish buyer, let alone convincing them of the advantage in it for them, is slim, and I would not like to limit my potential market. Even with British buyers, as you said yourself, considering the lack of "consistent and accurate advice" when purchasing in Spain, and the resulting nervousness that most buyers experience, I think many potential buyers could be frightened off buying a property when they find out that their Spanish legal representative is unfamiliar with the process.

But in theory I'm in favour of it!

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Buying a property in Spain in a uk limited company is fione, You can make a rental agreement and no the spanish do not yet look at the rent being paid as an indicator of true income, otherwise 99% of people would be fined!!!

As rentals are being looked at more closely, it is more for the owners not espacping paying the due tax on the income as opposed to how the tenant can afford it - although as a tenant you can claim relief on your spanish tax!!

Now the tricky part - great idea if you intend to keep it and pass it onto your kids/family after death as it avoids inheritance tax in Spain, but you would need to look at how this affects IHT in the UK.

Howver and this is the big one, its almost impossible to sell that ltd status to another and I will give examples.

To raise finance in Spain, the property HAS to be in the names of the buyers OR a Spanish SL - totally negating any benefits. You as the ltd owner once it transfers will show a profit and will be taxed accordingly (changed in the lkast 3 years I think)

The only way around that is to raise finance in the UK and all the buyers I have had who have been faced with this scenario have not raised in the UK, but wanted the loan in Euros, if for anything but if they come to sell at a later date they do not want to be caught out trying to find a similar buyer.

To raise finance in the UK may not be an option as the asset has to be in the UK (someone can correct me if Im wrong) which it isnt, so your options are extremely narrow.

I have had to take properties off the market where the owners insist on buyers purchasing the company and its impossible to find anyone to place cash into something - they all want/need to borrow

Of course, if you have something spectacular and unique, then it may be seen as a different issue.

Roberto - you avoid the 7% transfer because in effect you are not transferring the title of the property. If ABC ltd buys in Torremolinos and then the ltd company is sold to the next person, they are buying the company, the shares and NOT the actual proeprty, so there is no transfer at notary - another advantage, avoiding notary!!!

 

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