We have many clients who have either bought in Spain or the
Balearics, or are thinking about doing so.
In the past few years, there have been some changes in how
the Spanish government tax those who are UK based and have
a Spanish property, although with a change of government
this could alter again.
Here we will look at two aspects - Wealth Tax & Inheritance
Tax.
Wealth Tax
This applies to ownership of assets less any allowable
charges or debts. Assets include immovable property, cars,
cash, shares, jewellery etc. Therefore wealth tax is
calculated on the net wealth of an individual less properly
registered mortgages, charges and loans.
Non-Spanish residents are liable to wealth tax solely on
assets located in Spain. It also means that any allowances
that Spanish residents qualify for do not apply to a
non-resident. So tax commences on all the assets held in
Spain for a non-resident.
The way the property is valued, and most wealth is normally
held here, is based on the higher of:
- the rateable value
- the acquisition cost
- official valuation undertaken by the tax authorities
There are special rules for valuing bank balances as well
as other assets.
So what are the rates of tax?
Well, they are annual and range from 0.2% (up to 167,129
euros) to 2.5% (exceeding 5,347,998 euros). Perhaps the
most common bandings might be 167,123 to 334,246 euros
where the tax is 0.3%, and 334,246 to 668,499 euros at
0.5%. The tax is graduated, so you do pay the lower amounts
up to the next banding level and then the higher level on
the next etc.
So if you have a property valued at say 400,000 euros, your
annual tax bill would be 1165 euros. Not the end of the
world, but important to keep in mind.
Inheritance Tax (IHT)
This tax is assessed on the recipient - the heir - and if a
non resident would normally be taxable on Spanish assets
only.
One of the main things to grasp here is that there is NO
spousal exemption. So if you jointly own a property, and
one of you dies, the surviving spouse is subject to tax on
the half value!
Rates of tax range from 7.65% on up to 7,993 euros, to 34%
above 797,555 euros. It is then subject to another
calculation based on the heir's relationship to the
deceased as well as their own wealth.
So, as a rough example, if the deceased spouse's share was
worth 160,000 euros, then the IHT would be circa 23,000
euros.
A very important action point here is to ensure that you
have a Spanish Will, and that you inform your UK solicitor
of the fact to ensure the Wills are linked. Then Spanish
law deals with Spanish assets and UK law with UK assets.
The main benefits of making a Spanish Will are:
- there would be delays, extra work and costs involved in
relying on a UK Will for the disposal of your Spanish assets
- If you do not have a Will and die intestate, then the
assets will be distributed as per the intestacy laws. This
means that third parties decide who inherits your assets,
and many countries favour children over spouses
- If you are a non-Spanish national your Spanish Will can
also specifically state that you wish your Will to be
regulated under your own nation's laws
It should also be noted that having a loan held against the
Spanish property would reduce the taxable IHT element.
This is based on our current understanding of Spanish Law.
The advice above is not meant to cover all aspects of
buying in Spain, and please ensure you take reliable
professional advice.
Helpful site - http://www.taxcafe.co.uk/march2008.html
(article halfway down page)
Key Considerations:
If you plan to invest abroad, make sure that you take all
factors into consideration - informed choice every time.
ACTION POINT
If you have a Spanish property, look to have any borrowings
based in Spain, and if you do not have a Spanish Will, do
it now and link it to your UK Will!
----------------------------------------------------
Ray Prince is an Independent Financial Planner with
Rutherford Wilkinson plc, and helps UK Resident Doctors and
Dentists get the best deals on mortgages, protection and
investments, as well as helping them achieve their
financial objectives. Just visit
http://www.medicaldentalfs.com to get your free retirement
planning guide. Rutherford Wilkinson plc is authorised and
regulated by the Financial Services Authority.
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