Thread: Inheritance tax in Canary Islands

Caty

This is something you really need to take professional advice on. Are you a resident in Spain rather than the UK and if yes, have you actually lost your UK domicile (not that easy to do) If the UK tax authorities can prove you still have links to the UK, then your estate could be liable to both Spanish & UK Inheritance tax (with an offset)

A word of caution about transferring the apartments to a company being a cost effective solution - you will have to go to the Notary for new escrituras and pay all the relevant property taxes & registration costs - at least 7 to 8% - for such transfer. Also, as you will have originally paid for the apartments, and presumably the new company will not be able to "pay" you for these assets, you will be deemed to have "loaned" the company the equivalent amount of money ... so, on your death, I believe your estate will consist of a loan account to the value of the apartments at the date of transfer and such a loan account is also an asset to be taxed.

On Capital Gains ... Janet & I have discussed the reduction to 18% elsewhere and begged to differ! But, as the Spainish tax system is undergoing a complete reform with a Draft Bill already before the Parliament, I think you will find major changes happening in the next year ... and I'm afraid, I don't think the scrapping of Inheritance tax is one of them

Just found a good article online that shows you how to work out the various tax bands ... and it sure is complicated!

http://www.taxationweb.co.uk/taxlaw/article.php?id=18

Also have seen references to forming a Family Corporation which you should talk to your accountant about

Thanks for that link Doreen... apart from the main concern I had in finding out what tax would be payable on my property, it also opened up something else that was an interesting thing to point out...

With regards to Life Insurance, it says the following :

Spanish life assurance is nearly always written on an own-life, own-benefit, basis. Naturally there is no opportunity to write policies in trust for a beneficiary. It is always possible to nominate a beneficiary, but this is a purely administrative annotation, and has no effect upon title. The proceeds of a life assurance policy are therefore assessable to ISD (Inherritance Tax) when the recipient is anyone other than the policyholder (usually the life assured), and are treated as any other asset passing to that recipient. A life assurance policy written in trust (say, a UK policy) for a spouse stands the risk of attracting twice the rate of tax: trustees will be unrelated to the recipient, and hence Group IV transferors, where the spouse would have been Group II. It is good planning for a policy to be held on a life-of-another basis, since the recipient of the proceeds will also be the policyholder hence there is no transfer to be taxed (though if there is a savings element, there may be a charge to income tax on the policy gain).

So basically, it's saying don't get a life assurance policy on your own life... get one on your partner/spouses and your partner/spouse gets one on yours... then there is not ISD to pay if either of you dies.

Good advice, considering it could save you thousands!