1.- How much is the tax in Spain to transfer the Spanish property to a UK limited company?
There are 3 taxes:
- Capital Gains tax for the transferor ( the person that in exchange of the house receives shares of the UK company). This is 19 pc of profits ( if transferor is non resident in Spain. If the transferor is resident 21 pc ( but the first 6,000 Euros of profit at 19 pc and if the transferor is over 65 there is no tax provided the transferor meets the conditions of the law for total allowance of the tax).
- Town Hall Plusvalia. This is a tax to be paid to Town Hall based upon the time the transferor has enjoyed the property and the value of the property in the local rates tax.
- 1% Stamp Duty of the value of the property declared in the deed of incorporation
2.- How much will the Limited company pay each year in Spain?
The limited company has a duty to obtain a fiscal tax number, to appoint a resident representative in Spain and to pay a tax only if the company obtains profits in Spain. The ordinary tax for non resident companies is 24% of the profits.
The company can deduct from returns in Spain ( generally if it rents the property) the direct and necessary expenses.
Market value prices are applicable to business between the company and its director/shareholders and link business protocols are compulsory when the yearly linked business is over 100,000 Euros per year or people are resident in offshore territory
3.- How much tax is there to pay in Spain if the UK Limited company sells the house?
There is a Capital Gains Tax of 19% on profit, the same as when any non resident sells their property.
Further to this there is the Town Hall Plusvalia tax, the same as when any non resident sells their property.
4.- How much tax is there to pay in Spain if you sell the shares of the UK company to another person?
For the purchaser:
- If the purchaser buys the shares within 3 years of the transfer of the house to the company, the purchaser must pay 7% as if it were buying a property normally.
- After this time, the purchaser must pay 7% tax only if he/she acquires over 50% of shares. If two purchasers buy 50/50 there would not be any tax to pay.
For the vendor:
- Capital Gains tax to be declared in the country of residence (depending on the particular agreement to avoid double taxation, then there would also be taxed in Spain).
5.- Would Spanish Inheritance tax be avoided in this scheme?
As a general rule, yes. When the owner of the shares of the UK Limited company dies, his/her shares will go to his/her beneficiaries and this should not be a matter of Spanish concern.
Nevertheless, we cannot entirely rule out problems with the application of Spanish Inheritance Tax to this scheme because:
a) The Spanish Inheritance Tax Law (and Bylaw) are very vague on this point.
b) The only asset of the company is a property in Spain.
c) This scheme is set up to avoid the application of the Spanish Inheritance Tax.
As transferring Spanish properties to UK companies is not common, there is no precedents at this point in the Tax Authorities of Tax Courts decisions in Spain.
6.- Are there other points to take into consideration?
First: How much Inheritance Tax you have to pay now in order to draw up a balance of the advantages and disadvantages.
Second: To check how much costs to set up the UK company and to maintain it in the UK.
Third: To know the taxes you must pay in the UK each year.
Fourth: To know how much tax there is to pay in the UK if your company sells the house.
Fifth: To know how much tax you must pay if after selling the house the company gives you the money as dividends or return of capital.
Sixth: How much Inheritance tax is to be paid in UK for transferring the shares to beneficiaries.
Seventh: Check that the way of transfer of the property to the UK company is not a gift. Under this premises the company must pay a 19pc market value of the property by the transfer.