Owning a Spanish Property

You will find there’s a lot of information available on the internet with regard to ownership of Spanish property, but it would be foolhardy and rather reckless to rely solely on what you read on a website. However, you might like to consider some of the points laid out in this article and mark them down for further investigation.

Different Ways of Owning Real Estate in Spain

There are essentially three options available for ownership: the traditional way of owning your property in your own name, with a spouse or partner or in joint names with a partner, spouse or grown up child.

Another way of property ownership is to register the property in the name of a UK based company of which you are the proprietor. It may sound grand and a little complicated, but there’s really nothing to it. One can buy “ready-made” or “off-the-shelf” companies for very little money and you can ask a broker to assist you with the necessary documentation of registering this company and the property.

It’s one of the most tax efficient ways in which property ownership in Spain, especially when you wish to capitalize on rental income, can become far more attractive long-term. Although the UK registered company owns the property, you and your partner or your spouse are the owners of the shares in that company.

Any rental income you make from the property thus belongs to the company, not to you personally. Therefore, taxation doesn’t apply to you on an income you receive from the property. If you pay out for repairs or any expenses related to the property, like marketing the holiday rental for example, you can claim this back as cost of running a business and thus reduce your corporation tax. If you had registered the property in your own name, you would not be able to claim these expenses against your personal income tax payable in the UK.

As a company director, you can – but don’t have to – take an income in form of a salary. However, it is instead more beneficial to take an income in form of dividends, for which you do not pay National Insurance contributions.

Owning the property as a privately owned company rather than an individual has the additional advantage that the property no longer falls under Spain’s complicated inheritance tax legislation. While in the UK the estate is liable to pay inheritance tax, in Spain it is the beneficiary of another person’s will who will be penalised with inheritance tax.

When one shareholder of a private company dies, the company remains “alive” as a legal entity in its own right. This means that the Spanish inheritance tax law does not apply, as only the value of the shares form part of the estate, but these fall under UK inheritance tax rules, and there are fairly generous exemptions covering this issue under the “Family Companies” ruling.

As a shareholder of a company you are also entitled to ask the company for a loan, once there are sufficient cash assets derived your holiday rentals. This loan counts as a debt against the estate and reduces inheritance tax, once you exceed the zero band. The debt may be classed as an asset on the company’s books and thus has the potential to increase the value of the shareholding, but it is fairly impossible to calculate by how much.

Before embarking on this option, you should take comprehensive legal and taxation advice, since there is a difference in Spanish tax law between companies that are a trading concern and companies that purely exist for investment purposes.

Finally, the third way of property ownership in Spain is to register the property in the name of a trust, which you have set up for this purpose. Trusts are a uniquely British “invention” and are thus governed by English law and jurisdiction. You will need to take out comprehensive advice and make sure that the trust is set up correctly from the outset, as mistakes can be extremely costly.

Although the legal costs of setting up a trust are rather high, for people with some considerable assets to protect a trust is often the most beneficial option of owning property abroad. You can even combine the above company option with a trust option, since the trust is allowed to own shares in a company, thus enabling you to enjoy even greater tax advantages.

Consider the Options well

If all you want is a holiday home for the family and you’re not likely to ever let the property to third parties for money, then the first option is probably best for you. However, if you are thinking of making some money through rentals from your property in Spain, then talking to a professional about the most tax efficient way of owning the property makes sense. There are numerous benefits from indirect ownership with regard to inheritance tax and other taxation issues.

Be sure to make all the enquiries with professional advisors before you go house hunting in Spain to avoid the pitfalls later on.

For more information, please visit http://www.spanishpropertyinsight.com