So you have decided to move to Spain and having taken advice realise that you are going to be tax resident in Spain but will retain, at least for the time being, your UK domicile. The first thing many expats will want to do is buy a property. Of course some will want to be mortgage free, and many may not be in a position to secure a residential loan but just step back and think for a minute whether there is any advantage in securing a debt against your property. You have probably arrived having heard all sorts of stories about Spanish succession tax and how on death your beneficiaries will have to pay a huge amount of tax.
Unfortunately there is some truth in this and some fairly archaic rules that vary from region to region in Spain which in some cases allow only a very modest allowance against succession tax. In Spain it is the beneficiary, not the estate of the deceased who is taxed and there is no spousal exemption. Owning a modest property in Andalucía can still mean a significant tax liability for a beneficiary particularly if they are non resident and have some existing wealth of their own. Even in Valencia where local rules offered a 99% exemption from succession tax, the tax authorities have reined in their generosity and reduced this to 75%.
A mortgage therefore might be a sensible solution to reduce the net value of property but do not be fooled into believing that this can be dealt with sometime in the future; the tax authorities are very clear that effecting a mortgage sometime after having purchased a property is tantamount to tax avoidance and will be discounted when it comes to any calculation of succession taxes.
Since the financial crisis mortgage availability has been significantly curtailed and you need to seek financial advice from one of our financial advisers who can assess what your options are.
Of course one option put forward in some quarters is to purchase property in the name of an offshore or UK company so as to avoid any issue with succession taxes. Our advice is quite simple here, an offshore company will not work full stop and if you are a Spanish tax resident or intend to be one in the future then the likely success of holding Spanish residential property in a UK company to avoid succession tax has a very minimal chance of success. You may therefore find yourself seriously out of pocket in terms of fees paid without any certainty that you have solved the problem.
If you remain a UK resident than there is a possibility that this type of arrangement may work, at the moment, but you only have to look at how the UK is clamping down on properties owned by “non-natural persons” with increases in Stamp Duty and CGT to understand how easy it is for a government to make a predictable tax grab from such a soft target.
Do you want expert cross border advice? Telephone 900 102 374 for an initial consultation with one of our certified financial planners or email email@example.com.