stevesainty

We went to a breakfast seminar yesterday hosted by a company that offers legal and financial advice. It was mostly a meet and greet and let us know what they were offering.

One of the speakers was talking about inheritance tax and the possibility of gifting the property to your children now whilst the IHT rates were still unadjusted after the ruling that non-residents should have the same allowances as residents. The inference being that as Hacienda would be receiving less income for IHT they would eventually increase the rate of tax to compensate.

I would like people's opinions on the following please.

Scenario, married couple tax resident in Spain with property and small assets. One adult child tax resident in UK.

One of the couple dies and and their half of the jointly owned property passes wholly to the other. Because of the amounts and allowances no IHT is due but notary and legal fees and Plus Valia is payable.

The other half of the couple dies and all assets are bequeathed to the adult child. IHT is paid and also the notary fees etc. as above

The property is gifted to adult child now and gift tax is due, almost same as IHT, plus the usual notary fees etc.

On the face of it by gifting the property you are saving one lot of peripheral
fees but little else.

Would the adult, non resident child be liable to non resident property tax immediately?

Would the married couple have to pay any rent on the property to avoid any tax implications?

What would happen if the child pre deceased the married couple?

What would happen if the child got into financial difficulties and secured a loan using the property as collateral?

I have to say that before I embarked on such a course of action I would take professional advice; but I am interested to hear your thoughts, especially if you have already gifted your property.

snikpoh

... and just to complicate your scenario, what if you became non-resident in Spain just before your demise (assuming that you could plan things this carefully)?

In that case it would be a non-resident passing the property to another non-resident. Is it then IHT or succession tax that needs paying? Can't really be the latter as no one surely?

Dxf

Hola

Back in 2002 my children bought a finca in Spain. I then moved in with an usufruct to protect me (in theory, my children can´t get me out until I die). Blevins Franks advised me at the time.

Davexf

missile

Nice children you got Dave

Dxf

Yup - when I hear other people talk about their children, I realise how lucky I am LOL

Davexf

frigilianafreddy

How about this for passing on a house to your children with no IHT.

1. Sell house at market prce to the children
2. At the notary children pass over cheque for the purchase.
3. You don't cash the cheque!

I know it's a litlle more than "shady", but i'd bet it would work. Even better (if you had the cash) would be to transfer the money for the purchase from your (UK) account to theirs and get paid for the purchase in Sterling. This time, of course you can cash the cheque. This would only work for non residents who had UK accounts.

missile

Don't forget there would be buying and selling tax liability and notary fees.

frigilianafreddy

Yes, you would effectively pay taxes and fees of 10% (and possibly CGT - not a problem for anyone who's bought in the last 12 years) - a lot less than a non resident would pay now.

But probably best to see what the government does now it has to have equal treatment for non res and res owners.

snikpoh

... nearer 15% now with the recent changes in ITP.

frigilianafreddy

What's ITP? I was talking about the buyer paying vat of 8%, notary 1% and other costs 1%

johnnyone

I have just purchased an apartment and received the costs bill yesterday. Came to 13.5% of the costs plus there were some bank charges (for what?) that brought it up to 14%.

frigilianafreddy

Johnny, maybe €1200 to €2000 of that would be solicitor. In the example i am talking about there would be no legal fees (apart from 1% notary.) 10% would cover cost of purchase excluding legal fees, therefore. Also bank charges would not apply in the example i am alluding to.

snikpoh

Why VAT (IVA) - this is only payable on new builds isn't it?

ITP is transfer tax payable on all (second hand) assets that are transferred from one party to another in Spain. Currently ITP in Valencia is 10% but may be different elsewhere.

frigilianafreddy

Ok, whatever the tax is it cost me 8% on a second hand villa, 1% for notary and 1% for other costs (excluding legal).